We’re back with part two of our deep dive into the “MHP bubble”. You can read Part 1 of our take, here. Read on for our latest contributions to the subject!
Let’s start by noting that MHPs aren’t the only areas affected by the bubble. We’re seeing other residential, agency, asset-class lending areas put caveats on loans relating to evictions and tenant rights. As this starts to further penetrate our industry, it could set things up to go sideways but again super high demand and very tight supply should moderate most of the impact from this. You as a park owner will need to really pay attention to the vetting of your tenants to make sure they can cover rent and abide by the park rules and regs before moving them in.
More Curveballs For The MHP
Lending is really the life blood of our industry. It’s responsible for a number of different outcomes. The excessive growth in pricing, cap rate and yield compression in the last 3 years is partly due to easier access lending. Putting a stronghold on this outlet could spell big problems for park owners.
The 1031 going away would also be challenging. This would, in effect, discourage sellers from selling. They’d be incentivized to simply recapitalize through a refinance instead of a sale on account of tax gains. Don’t start panicking yet, though. As of today, it’s looking like congress is going to back off on removing the 1031. We can rest a little easier knowing it’s going to stick around a little while longer.
The Impact Of National Law
Luckily, we seem to be safe from some of the more dire possible curveballs. Still, it’s good to discuss them, just in case. One example would be efforts towards adding more regulation to our industry. Imagine if some national law came into play about tenant rights relating to MH.
Even though we aren’t subsidized by any government, there’s a chance we’ll be seeing more regulations from the government. That may prove to push certain buyers out. This is still not as likely to happen, but it’s worth staying abreast of.
Are Restrictions 100% Bad?
Let’s say more restrictions do occur, though. Does that mean it’s an automatic bad thing? Not if we’re to take New York and California as examples. These are areas with already very high restrictions. They are still trading at a high velocity after some of the newer, more restrictive laws came into place, but it did take a year or two for the dust to settle while investors learned the new rules to invest in those states. Cap rates and pricing did decompress significantly for those states in the beginning but have since returned to aggressive levels as the more sophisticated investors learned to navigate the new rules.
Like in most cases, intelligent buyers will figure out how to navigate the space. They’ll be just as successful but now with a less buyers in those markets for good inventory. Less competition, likely meaning more success.
The Mobile Home Park Expert
Even more considerations face the industry as the MHP bubble progresses. Take the constraint on manufactured housing itself. This is causing decompression in the yield, due to longer delivery times all around. Right now, it takes 12-18 months to get a home ordered and online. Historically, you could have it ordered, had it online, and sold within a matter of a few months.
Without corrections for things like this, pricing will likely continue to slow its upward trajectory and may even stall pricing as the manufacturing bottleneck tries to correct itself. Still, it would take each of the factors covered today combined to lead us into a true downward spiral. And as stated, it’s pretty unlikely – thanks to the supply/demand curve which is heavily weighted in the owners favor. We only want to keep our readers prepared! For information or questions about the industry, reach out to us today!
