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Commercial Department: Q&A: Jonathon McClellan, Marcus & Millichap: July 2018


Q&A:  Jonathon McClellan, Marcus & Millichap

High demand bolsters investments in manufactured housing

Real estate investors interested in capitalizing on affordable-housing needs might not look to purchase or build a manufactured-housing community (MHC), but demand is consistently high for these properties.

According to the Manufactured Housing Institute, the 93,000 manufactured homes built in 2017 represented 9 percent of all single-family home starts in the U.S. The average sales price of a new manufactured home — without factoring in land-acquisition costs — is $70,600, considerably less than the average sales price of a traditional single-family home.

A first-half 2018 report from Marcus & Millichap, a national commercial real estate services company, said that nationwide vacancy rates for MHCs reached a 10-year low in 2017, and rent prices grew 5 percent or more year over year in markets like Baltimore, Denver, Houston and San Antonio. Scotsman Guide spoke with Jonathon McClellan of Marcus & Millichap to gauge the climate for MHC investments.

What is happening with the market for manufactured-housing communities? Are they a viable means for creating more affordable housing and addressing inventory shortages?

First off, the investor demand right now is, I’d say, at an all-time high in terms of buyers. I think Wall Street uncovered [MHCs], I don’t know, probably three or four years ago, and since then we’ve just seen a flood of activity, a flood of new funds coming to the market. Maybe that’s because it’s looking a little more recession-proof. … We didn’t really see much of an occupancy decline. We didn’t really see rents drop at all during the recession last go-around.

Where should commercial mortgage brokers look for financing — conventional loans or alternative financing, such as private money?

Typically, your $3 million-and-under deal size, you’re going to be looking more at a regional or local bank.

You’re going to see an LTV (loan-to-value ratio) of anywhere from 70 to 75 percent. [Interest] rates will be a little bit higher. … You get into that $3 million to $10 million [range], you’re starting to look more at the CMBS (commercial mortgage-backed securities) market, nonrecourse debt, 30-year [amortization], 10-year fixed [rate debt].

Rates are … right around 5 percent, low 5s. Obviously, that’s continuing to pick up. And then, we’ve seen a lot of institutional-quality, larger assets trade recently, where Freddie [Mac] and Fannie [Mae] have been heavily involved. Freddie has really come on strong recently in terms of debt quotes and whatnot, which has been a huge help to investors.

Which areas of the country are ripe for potential investments in this sector because of affordable-housing needs?

A need for affordable housing, obviously, is important. We’ve seen a lot of [MHC] communities being shut down and sold to developers. … We’re starting to see a little bit more of a push to try and help lower-income people with affordable housing. … California, Arizona, Texas, Florida, kind of up the East Coast, those [MHC] communities that we look at are going to be 90 percent occupied, up to 100 percent. [In the] Midwest, it drags a little bit behind but, again, average occupancy, certainly around major metros, is still going to be around 90 percent. Again, we’re seeing occupancy either stay stagnant or rise. We haven’t really seen a dip in occupancy, just because the demand for affordable housing is so high.

Is the growth opportunity for manufactured housing in new construction or rehabilitation projects?

I’d say rehabilitation. To build a community from scratch, one, it’s expensive, trying to get a local jurisdiction to sign off. I don’t know if it’s a stigma that cities just don’t want … what they think are trailer parks, but in reality, they’re really nice manufactured-housing communities. We’ve seen a lot of operators recently who’ve been looking for the 50, 60, 70 percent occupied park that they can go into, pull the old homes out and bring in new homes, and definitely bring the aesthetics up in the community.

Is this sector similar to senior housing in terms of an older population driving demand?

I think the big talk in the industry is the amount of baby boomers that are coming into retirement. That’s going to accelerate rent [prices], especially down in Florida, where a lot of people like to retire to. With that baby boomer population coming up to retirement, a lot of operators are thinking that owning a 55-plus (age group) park is beneficial, because the demand is always going to be there.

Jonathon McClellan is a senior vice president of investments and a senior director of the national manufactured-housing communities (MHC) group at Marcus & Millichap. He specializes in the sales and marketing of MHCs nationwide. Since 2005, his MHC group has closed more than 200 transactions valued at more than $1 billion. McClellan has successfully served as an owner and operator in the disposition of MHC investments, sharing local market knowledge with property owners and reaching out to a national platform to deliver investment sales to qualified buyers. Reach McClellan at (216) 264-2023 or


Neil Pierson is editor in chief of Scotsman Guide Media. Reach him at or (800) 297-6061.

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