Manufactured housing, once a neglected sector of the real estate market, is starting to pop up on the radar of real estate managers.
Managers like manufactured homes, also known as mobile homes, because they can earn a value-added return by converting some of the parks to institutional ownership; they make improvements, increase income by raising rents and create portfolios that can be sold or spun off into real estate investment trusts. The new but growing segment requires less capital expenditure than other real estate sectors, and retiring baby boomers are creating more demand in the face of a dwindling supply of parks.
Although some existing parks have expanded, only 10 new mobile home parks have been built in the last two decades, according to PGIM Real Estate research, a unit of Prudential Financial Inc. And institutional ownership is tiny — 15% to 20% of the overall investment-grade market is owned by REITS, with only to 2% to 3% owned by other institutional owners. Approximately 5,000-6,000 manufactured housing communities in the U.S. are institutional quality. Residents typically own their mobile homes but rent the property from park owners. And because the structures themselves aren't really all that mobile, most homeowners tend to sell rather than move them, money managers say. That contributes to the stability of the cash flow.
The Carlyle Group LP, Washington, is a big player in the mobile home segment. A Carlyle spokesman said the firm is particularly active in the California and Florida markets.
"There are a lot of 'mom and pop' shops," a spokesman said. "There are a lot of communities in parts of the country we are looking at. … There is a lot of room for improvement." Carlyle aims to "reposition" the mobile home parks, many of which have been neglected by their owners to "make them nicer," the spokesman said.
But the sector also can be a sensitive area because it's one of the largest areas of affordable housing. And residents say the rent increases are getting too high.