Why Selling Your Mobile Home Community Off-Market Can Cost You Millions
By capstone Posted February 3, 2021
Before the pandemic, the manufactured home community market was already experiencing unprecedented pricing increases. Prompted by the intersection of institutional investor demand, lack of inventory, and a national affordable housing crisis, buyers from across the spectrum were contesting for a piece of the mobile home community pie. It was an undisputed seller’s market.
Now add the COVID-19 pandemic and the corresponding economic devastation to the mix and we are in the midst of a historic period in the manufactured home space. There has never been a better time to sell. Selling to the wrong buyer or off-market, however, can cost owners millions of dollars.
Investors bet on affordable housing
The affordable housing crisis was at an apex even prior to the pandemic. COVID-19 exacerbated the crisis. According to the National Low Income Housing Coalition (NLIHC):
- There is a national shortage of more than 7 million affordable homes for the country’s 11 million-plus extremely low-income families.
- There is no state or county where a renter working full-time at minimum wage can afford a two-bedroom apartment.
- Seventy-five percent of all extremely low-income families are severely cost-burdened, paying more than 50% of their income on rent.
Once the pandemic hit and the unemployment rate reached a historic high of 14.7% in April 2020 as millions of Americans lost their jobs, the perceived demand for affordable housing grew–especially for properties and communities outside of higher-density centers. Typically located in lower-density areas, affordable, and socially distant, interest and demand for manufactured home communities were further heightened.
In addition, mobile home parks have lower turnover than multifamily rentals, greater value-add opportunities, and thanks to development and permitting restrictions, limited inventory. This combination of characteristics renewed and extended what I had called–pre-pandemic–the 11th inning in an already long-running seller’s market. We are now solidly into a 12th inning. While none of us know when this game will end, we do know that it will.
The market conditions created by the coronavirus provoked a buying bonanza that has attracted a previously unseen number of institutional, private equity, and individual buyers wanting to get in on the mobile home community action.
This increased demand has pushed prices for manufactured home communities through the roof with values escalating by approximately 12% over the last 12 months, according to Green Street CPPI. This increase placed manufactured housing communities as the top-performing asset class of the last 12 months as all other property types decreased in value with the exception of industrial properties which, according to Green Street, increased in value by approximately 10% year-over-year.
- Mall properties which declined by 28% for the 12-month period
- Lodging decreased by 25%
- Strip retail declined by 13%
Looking for profit where there is profit to be made, buyers of all property types and levels have turned to the manufactured home space in droves. While this may seem like an advantage for all mobile home park sellers, it’s not. The divergence is innate.
A buyer’s ideal scenario
Buyers have one goal–to buy at the lowest possible price. To do that, many are relying on the current hype to approach sellers directly and attempt to make a deal off-market. In fact, a buyer’s ideal scenario is an off-market deal where they get to speak directly with the property owner and bypass the expertise, knowledge, and competitive bids that an experienced seller-focused broker brings to the table.
Without a seller-focused broker representing the seller, the buyer knows that their chances of successfully lowballing are quite high.
When a reputable seller-focused broker that specializes in the manufactured housing asset class is a part of the deal, most lowballing buyers will make a beeline for the next unrepresented seller. If they don’t, the competitive process created by the broker will ensure that they are outbid.
A seller’s ideal scenario
While a buyer’s main goal is to buy at the lowest price, owners aim to sell at the highest possible price.
There has never been a better time to do that.
The market is seeing record prices for manufactured home properties as well as never-before-seen deal velocity. These record prices however are not being done or seen on off-market deals–regardless of the size of the property. Record-setting deals are being executed by more sophisticated buyers that do not engage in off-market transactions.
As someone with an entrepreneurial mindset and a natural negotiator, I know it can be tempting to sell off-market. You think you will save time and commission. As a seller-focused broker that specializes in selling manufactured home communities, I can tell you that the pricing difference is substantial between on-market and off-market deals easily exceeding what you think you’ll save on commission.
On average, at least half a point on the cap rate on in-place NOI. In more direct terms, in our shop, we’ve been able to deliver to sellers somewhere in the range of 15% to 50% more by selling their property on-market and effectively maxing out the price the market will support.
Now that’s a seller’s ideal scenario.
- For example, on a recent deal we worked with a mobile home community owner that had a portfolio in Missouri of 531 sites. The highest offer he had received off-market was for $10.3 million. Upon being engaged by the seller, we recommended several strategies to increase the perceived value of the portfolio and conducted a comprehensive national marketing campaign to broadly promote the property.
We received multiple bids from qualified buyers and sold the property for $15 million to an out-of-region buyer, representing a premium of approximately 46% or $4.7 million over the off-market offer.
- In another deal, an owner in Texas was working with a local broker to dispose of his 300-site property for sale off-market. The highest offer they had received was $24 million. He retained our firm to sell the property on-market. We sold the property for $30 million to a new-to-market buyer. The sale represented a difference of $6 million or approximately 25%.
I have yet to meet a buyer who would willingly leave millions of dollars on the table.
When you work with an experienced and reputable seller-focused broker that specializes in the manufactured home space, you are leveraging your advantage by selling your property on-market. Without representation and selling off-market, you are giving up your advantage.
So, how does selling your property on-market differ from selling it off-market?
On-market, your property and pocket will benefit because the right seller-focused broker will:
Widely market your property to as many potential buyers as possible
When you sell your property off-market, you are in effect, not marketing your property. This drastically minimizes the number of potential buyers and your potential price.
Create a competitive bidding process
Interested buyers will bid against each other, increasing the property’s perceived value and desirability, and as a result, price.
Expertly negotiate on your behalf
Your seller-focused broker will work to expand on the bidding process and expertly negotiate to maximize your price. However, maximizing your price is only part of the equation. Your seller-focused broker will also negotiate to create the best terms for you. In an off-market deal, you have to negotiate price and terms for yourself, giving the buyer, or the broker acting on behalf of the buyer, the upper hand.
Provide strategic counsel on how to maximize value
Regardless of how well a property is managed or maintained, there are many strategies that an owner can employ to maximize value for potential buyers. An experienced seller-focused broker will provide strategic counsel on how you can maximize the value of your property to potential buyers.
Professional transaction execution
From pricing and due diligence to financials and title, the sales process is cumbersome and time-consuming. In an on-market deal, you will have an expert on your team to execute a smooth and professionally managed transaction from beginning to end to successfully close the sale.
These are just the top five benefits of working with a seller-focused broker to sell your property on-market. Here’s a snapshot of the benefits at-a-glance.
On-Market vs Off-Market At-A-Glance
The current market conditions and the historic nature of this moment in time make it more important than ever to protect your investment and legacy. Selling your property on-market with a reputable seller-focused broker allows you to keep your advantage and potentially millions of dollars in profit you could otherwise be leaving on the table.