I am an advocate of park ownership by the residents. However, I have also consulted and financed a number of park purchases by affordable housing (501c3) nonprofit corporations (NFP) and I believe that NFP can have a significant role in preserving and improving manufactured home parks.
They can play a number of roles.
AS PARK OWNERS
NFP can and do have a significant role in park ownership. Such activity tends to be centered in California and some New England states. Most of my direct knowledge comes from California.
Note that my bias is toward ownership by the residents. If the resident group has the life experience, organization, desire and (some) financial resources, I believe that the group should seek to purchase the park. However, if a NFP purchases the park, the NFP may be a better landlord, but they still own it and still make the rules.
There are two basic NFP financing models in use in California.
FHA Financing
FHA has a loan program specifically for manufactured home parks and it has great loan terms – 40-year amortization, fixed rate for the entire term of the loan, up to 90% loan to value, and interest rates today of about 3.75% – 4.0%. Not bad. FHA works through private lenders who underwrite the project and work with HUD/FHA to obtain a government guarantee of the loan.
The program is complex and takes some time, but I have used it successfully for both NFP park purchases and resident group park purchases. Often, NFP can fund the project with AAA rated tax-exempt bonds (using the FHA guarantee as the credit enhancement), although current interest rates are so low that conventional funding is often preferred.
Insured Tax Exempt Bond Financing
This method has been used by several NFP for 15-20 parks in California. Although it obviously works, it typically results in a park purchase for a price that is substantially higher than the ‘market’, resulting in increased resident site rents. This is because the insurance company providing the credit enhancement will limit their insurance coverage to a smaller amount than FHA, say 70%-75% in order to get an AAA bond rating.
So the NFP, working with the park owner, convinces the resident group to support a park wide rent increase. The group is willing to do this because they believe that the NFP will be a better landlord than their current owner. Subsequently, the NFP buys the park at a value supported by the increased rents, and, since NFP don’t have lots of equity money, will get the best bond financing available with the owner carrying back subordinated debt to make up the difference.
Often the NFP will convince the local City Fathers to throw some money into the pot to assist the lower-income residents. The City Fathers are willing to do this since they don’t like the current owner any more than the residents.
In theory, the NFP is happy since they now own a park with a positive cash flow. The owner is happy since he is getting a better price than the ‘market’. The City Fathers are happy since they now look like great humanitarians. And, finally, the resident group is happy because their prior owner is history, albeit with the group having higher rents and only marginally better input into park operations and rules.
The real trick for the residents is to make sure they get a good NFP. Not all of them (at least in California) are.
ORGANIZATIONAL CONSULTANTS AND MANAGEMENT
NFP can also provide a role as organizational consultants to the resident group seeking to purchase the park. The group is often eager but lacking in experience. NFP can offer their prior experiences with affordable housing projects, tenant organization and homeowner guidance and counseling. After the closing, the NFP can act as the management company responsible to the resident board for day-to-day park operations and maintenance. The NFP typically is compensated for all these activities.
PARK SITE & HOME OWNERSHIP
I am working on a project in central California where the owner (in this case a private owner, but the concept works for NFP) is building a park, installing all the manufactured homes and will rent the homes/sites to low-moderate income families. The financing being used is another program provided by FHA, which will fund both the initial construction, and then, after completion, roll the construction financing over into a long-term fixed rate permanent loan. Loan terms are similar to the FHA terms detailed above.
PARK SUBDIVISION
Subdividing a manufactured home park is a process whereby the existing land/lease park is subdivided and the individual lots are sold to the existing residents, who, if they can afford the lot price, will end up with a fee-simple interest in their lot. The concept has a checkered history in California because many landlords have been using the subdivision route to force residents off of rent control, a feature of California law. Lot prices in California can be over $100,000 making it difficult for some residents to afford.
However, a NFP could, in theory, build a park using the FHA construction/permanent financing program described above and, later in the life of the park, subdivide and sell the current residents the fee-simple lots. The NFP often has expertise in arranging financing for land/home purchases by low-moderate income persons and can work with the residents during the lease up process to educate them on the overall plan. At the end of the day, the NFP would have a complete subdivision of quality housing with a management contract with the Home Owners Association (HOA) to provide continued services.
There are probably additional ways that NFP can be active in manufactured home parks, limited only by their mission and their imagination.
I’ll be in touch,
Deane
Deane Sargent and PMC Financial Services have been helping mobile home park resident groups and cooperatives to organize and find financing to buy their parks for over 20 years.