Deane’s Month – August 2013

As I mentioned in my prior Blog, I have been really busy on three things in particular:

1. Responding to resident groups casually interested in buying their park,
2. Responding to groups with an immediate problem, and,
3. Responding to owners who want to sell their park to the resident group.

Today I want to talk about 3) Responding to an owner who wants to sell his park to the resident group.

This situation is deceptively complex.  

On the one hand, since ‘getting the owner to the negotiating table’ is probably the most difficult task in a resident park purchase, the idea that an owner would contact me about selling his park to the group is really exciting.

On the other hand, it is important to determine (realistically) what the owner wants to accomplish.  In truth, there are very few owners (probably ‘Mom & Pop” owners who want to get out of the business and really have a relationship with the resident group) who are totally altruistic.   

Most owners have an agenda, and they have determined that a sale to the group is their best option.

So, what are the likely owner agendas?

1. A higher price.  Most groups are willing to pay a purchase price based upon what they can finance.  The bottom line for individual residents concerns the purchase price of their share, and what their monthly payment will be after the closing.  Since there are high-leverage loans available only to resident groups, often they can pay more than an investor and still meet the goals of an acceptable share price and a reasonable monthly payment.  The other big factor is that the group is in a poor negotiating position.  These deals take a long time and sometimes collapse because of other factors.  If the group, like an investor, could come up with cash and close in a short timeframe, they could negotiate a better price.  But they can’t come up with cash (they must have financing) and the closing takes a long time.  In California, when residents purchase the park, the property tax of the owner carries over to the group.  An investor would have to pay property tax based upon the reassessed value after the purchase, meaning their expenses are higher and the price they can pay is lower, all things being equal.

2. Infrastructure issues.  Sometimes the park needs work beyond normal maintenance.  Usually such issues are with the utility systems – sewer, water, gas, electric.  Sometimes its the roads.  These issues can be expensive and may deter a normal investor.  A resident group will always have their own professionals evaluate the park, and, if infrastructure issues exist, they can be dealt with through the financing programs.

3. Personal issues.  These can range from tax benefits that owners may obtain if they sell to the group to estate planning issues.  I once closed a deal where the seller was going through a bad divorce and was OK with the long closing time since he could negotiate with his ex-wife better and ‘tweat’ her along the way.  Go figure.

4. Other unknown reasons.  

It is very helpful if I can determine the owner’s goals so I can evaluate the owner’s commitment to the transaction.

Other thorny issues are the attitude and characteristics of the resident group.

The group is often deeply (deeply) suspicious of the owner.  When I contact them saying that the owner asked me to facilitate a resident purchase, the group sometimes thinks I am representing the owner and their suspicion transfers to me.  I have to overcome this suspicion to accomplish the deal, and, if I can’t, it is best to ‘pass’ on the project.  

Also, the group wants to know why the owner is selling to them.  They suspect a ‘pig in a poke’.  If the group doesn’t feel comfortable with the motivations behind the deal, they will balk.

Finally, the group itself may have its’ own issues.  If the group does NOT already have a resident organization and have some positive relationship among the residents, just getting them to work together can be a problem.  If the group is internally divided, they may not be able to come together to get enough support.  

Examples of internal divisions are:

 Home renters vs. homeowners.  Homeowners have different motivations to buy the park than renters.  Often the seller retains ownership of the rental homes, making the financing more complex.

 Senior vs. family.  Some parks have both seniors and families and often their economic situation and motivations are different.

 Ethnic divisions.  Ethnic divisions are not necessarily bad, but, since some ethnic groups tend to know one another better than folks in the other groups, you have to bridge the divide in order to have a successful purchase group.

 Internal strife.  All parks have some internal strife, like any neighborhood.  But some parks have groups that are openly at odds with other groups within the park.  If these folks do not come together to achieve the purchase, the deal will fail.  That does not mean that everyone has to meet on Saturdays in the clubhouse to have pancakes and sign ‘Kum ba Ya’.  It just means that both groups recognize that buying the park is best for everyone.

Bottom Line: When the group is looking at me to determine that I am not representing the owner, I am looking at them to determine if they can overcome their internal issues and complete the park purchase.

Next time – LEADERSHIP

Deane

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