Why big investors are buying up American trailer parks | Financial Times

The words “trailer park” aren’t used in America any more — at least not in polite company. Manufactured housing is the preferred term for the snug and relatively inexpensive prefabricated spaces that represent “home sweet home” for the roughly 22 million Americans now living in them around the country.

Many of us know only the stereotypes: rows of dilapidated white rectangles occupied by the poor and owned by grumpy landlords only a bit wealthier than their tenants. Low- cost mortgages are not available for this kind of property.

But times have changed — and so has the manufactured housing business. There are still places that look very much like the trailer parks of old. But there are just as many that reflect a new reality.

Manufactured housing is no longer about mobility (trailers that can be carted from place to place by holiday-goers or migrant workers) but about affordability. These homes look pretty much like your typical ranch house but, depending on where you live, they might cost half the price.

This makes manufactured housing a hot commodity. And this, in turn, reflects another shift. While the past several decades of globalisation and technological development have lowered the price of most goods and services in the US, there’s been inflation in all the things that make people middle class: healthcare, education and, most important, housing.

Over the past decade, the cost of shelter has risen sharply compared with everything else — housing prices contributed a record 81 per cent to core inflation in summer 2017 and remain responsible for “the lion’s share” of all inflation in the US, according to a recent Cornell University study.

The result is an affordable housing crisis in much of America. According to one survey last year, median-priced homes are now considered technically unaffordable for average wage earners in three-quarters of the country. This is particularly true for younger people (who now hold a record amount of debt), older people on fixed incomes and renters.

Last year, Harvard’s Joint Center for Housing Studies reported that 47 per cent of people who rent in America are “cost-burdened”, meaning they spend more than 30 per cent of their income on housing. That proportion increases to 83 per cent when looking specifically at low-income renter households. Meanwhile, the amount of low- rent housing (costing $800 per month or less) fell by about four million units between 2011 and 2017.

As a result, manufactured housing has become “one of the few sources of naturally occurring affordable housing” in the country, according to a recent study by Fannie Mae, the Washington-backed residential mortgage agency.

While most residents in these communities still make less than $50,000 a year, they include all sorts of people — from retired teachers and social workers looking to downsize and still live in the same community to snowbirds looking for a cheap part- time property in the Sun Belt, to new immigrants and younger people who need more space than they can afford in places where the jobs are.

But prospective residents aren’t the only ones who want in. The world’s richest investors do too. As older owners of mobile-home parks are retiring and selling up, big-name investors — from real estate investment trusts such as Equity Lifestyle Properties (ELS) to the

Singaporean sovereign wealth fund GIC and large private equity funds such as The Carlyle Group and Apollo — have all begun buying mobile-home parks.

A number of smaller regional real estate investors have entered the game as well. Institutional investors accounted for 17 per cent of the $4bn in sector transactions in 2018, up from just 9 per cent of the $1.2bn in transactions in 2013.

Mobile-home parks are attractive to investors because of the reliable annual rate of return they provide: 4 per cent or more. This is about double the average US real estate investment trust return, according to a report by the Private Equity Stakeholder Project and two other consumer advocacy groups. The sector is also booming, with shipments of new manufactured housing units rising consistently since 2009 as people have been priced out of traditional homes.

But as big money has entered the sector, so have high-profile complaints: from tenants and activists concerned about rent spikes and poor maintenance under their new owners, to lower-income people, forced to choose between paying rent or medical costs.

© Ricardo Nagaoka

Anne Morin, 77, moved to an investor-owned park called Shadowbrook ‘because it seemed like a really good financial idea’, but now worries about being able to pay the rent long-term. ‘

Shortly after a spate of publicity last year, Democratic presidential candidate Elizabeth Warren sent letters to some of the big investors getting into the sector, citing dramatic rent increases and requesting information about their “use of predatory practices to boost profits in the communities they own”.

Since then, legislators at both state and national level have been agitating for new rules that would ensure rich investors don’t end up driving tenants out — and forcing up prices in one of America’s last remaining bastions of affordable housing.

A Tale of Two Parks

On the banks of the Clackamas river in Portland, Oregon, you’ll find any number of $1m homes. You’ll also find the Clackamas River Community Cooperative (CRCC), a model of resident-owned manufactured housing, filled with beautifully kept, lushly landscaped bungalow-style properties that sit on some of the most attractive land in the area. Peaceful and green, the site is only a 15-minute drive to the centre of one of America’s most desirable coastal cities.

On sunny days, residents of many ages and ethnicities will be outside tending their flowers and lawns, or walking dogs along well-paved trails that wind down to a community park with a basketball court and a swimming area on the river.

“We’ve invested about $160,000 in our green spaces,” says Kahlei Howard, a resident who takes me on a tour of the site, which is owned by the residents as a group. This is unusual — most people who live in manufactured housing parks in America typically own their home but not the land with it.

Howard, 59, is a former Milwaukee resident who downsized to the property along with her husband a few years ago. “We had a big house and a beautiful yard, but I just wanted less,” she says. Less upkeep, less space and less work to support a lifestyle she didn’t really want or need.

© Ricardo Nagaoka

Greg and Elizabeth Lindstrom outside their manufactured home at the Clackamas River Community Cooperative. ‘It’s a secure, friendly community,’ says Greg. ‘We won’t be moving ever again’

The same goes for Greg and Elizabeth Lindstrom, aged 50 and 45 respectively, who moved to CRCC after one of their children went to college. “My wife has multiple sclerosis, and we just wanted less house to take care of,” says Greg.

The pair bought and refurbished a three-bedroom, two-bathroom property for half of what they would have paid for a traditional home. “It’s a secure, friendly community,” says Greg. “We won’t be moving ever again.”

The Clackamas park, a 76-lot property, was bought by its residents in 2012 for $5m, with the help of ROC USA, a non-profit venture that aims to expand resident-owned manufactured housing across the country, and its local affiliate Casa. The previous owners, Michael Fingerut and his son Mike, chose to sell after the senior Fingerut decided to retire.

The CRCC residents were lucky. The Fingeruts lived nearby and had no desire to see the park go to a large corporate owner. “My dad was the original developer of this property,” says Mike.

“There had been a lot of high-profile cases in Oregon of investors who bought parks and kicked people out. We had a great relationship with the residents and didn’t want that to happen.”

Julie Massa, the Casa employee on the project at the time, and ROC’s president Paul Bradley, a social entrepreneur who worked on community housing for decades before founding the group in 2008, walked around the park with Fingerut.

Together they met residents, many of whom had never owned their own homes before. “People were worried about what would come next,” Massa says. Would the co- operative be able to manage the financial load? What would happen if there were disagreements among residents about how to run the park? How might the demographics change? (Portland is a blue city in a red state that is still struggling to adapt to economic shifts, which have brought more minorities and immigrant families to the area.)

“We were trying to do three things,” says Massa. “Build a co-op, do a real estate deal and, ultimately, create a community.”

© Ricardo Nagaoka

Manicured topiary at the Clackamas park in Portland, Oregon, which some see as a model of resident-owned manufactured housing © Ricardo Nagaoka

They succeeded, in part because the Fingeruts were patient. They had plenty of investor offers but they were willing to wait for Casa and ROC, which underwrote the loan, to organise the co-op and orchestrate the purchase.

A state tax break that waived capital gains for parks sold to residents helped bridge the gap between what the co-op and the investors could pay (the Fingeruts say they could have made up to a million dollars more from a single investor).

ROC is part of a growing national movement to help lower-income people hang on to their homes by turning older mobile-home parks —that might otherwise be sold to large investors— into resident-owned co-operatives.

People in these communities tend to be financially conservative. They know what it’s like to live on the edge, and they don’t want to

-Paul Bradley, president of ROC, a non-profit that supports resident-owned manufactured housing

The non-profit and its affiliates have helped more than 17,000 owners of manufactured homes in 17 states come together to buy their parks since 1984. None has foreclosed or faced bankruptcy, despite the fact that 75 per cent of buyers were from low-income households.

As a Fannie Mae report noted: “Residents of these communities were willing to go to great lengths to secure their futures.”

Bradley sees this as a model to build not only housing security but a middle-class life for vulnerable Americans. Data tallied by ROC for 25 resident-owned properties over five years showed average site fee increases of only 0.86 per cent a year, compared with a national average across all manufactured home communities of 3.9 per cent.

“People in these communities tend to be financially conservative,” Bradley previously told the FT. “They know what it’s like to live on the edge, and they don’t want to.”

Still, he says, “we’re competing all over the place with private equity firms”, which can often put up more money, more quickly, than residents. Indeed, in many states, residents aren’t even entitled to know whether properties are being sold until they receive their eviction notices.

That’s something Bradley and other activists want to change. But to do so, they’ll have to compete for prime properties with some of the richest investors in the world.

CRCC is in many ways the dream scenario for a manufactured housing park. About two minutes down the road is Shadowbrook, another manufactured housing community where you’ll find a more common reality: a group of residents aged 55 and older, living on fixed incomes, who have plenty of complaints about their remote corporate owner — in this case, ELS, the Chicago-based publicly traded real estate investment trust founded by investor Sam Zell.

Even at first glance, the two communities seem different. Shadowbrook is less lush, less green, filled with a mix of tidy, well-tended bungalow-style homes, and less well-kept trailers in various states of disarray.

Anne Morin, 77, owns one of the former. I meet the retired schoolteacher at her cosy, carpeted two-bedroom home with a pretty deck out back. It is about half the monthly price of the smaller condo she was renting previously.

“I really didn’t want to live in a manufactured home park,” she tells me. “That’s the truth. I wanted to be nearer to the museums and theatres downtown, with everything close by. But I did it because it seemed like a really good financial idea.”

That turned out to be only partly true. The cost of her home was about $100,000; much less than a condo. But Shadowbrook’s average site fees — the monthly costs paid by a manufactured homeowner for the land on which their property sits — increased dramatically between 2012 and 2017, from $638 to $828 according to JTL Associates data. (At CRCC, where residents control the rates, average fees have remained steady at $590.)

Morin frets about being able to afford her rent over the long term. Her trailer would cost as much as $20,000 to move, even if she could find another space at a nearby park. “You end up being stuck,” she says.