Creative Thinking Leads To Big Value Addition for 3 Communities
Case Study: Southern Indiana 3 Communities portfolio
Communities Specifications: 3 Communities, 150 sites
Project Scope: Blank Family Communities was brought on by ownership to manage and mitigate a multitude of problems present to prepare the Communities for sale.
· Rental Portfolio - The Communities had 30 rental homes, all older than 1995, earning roughly $550/month, with an expense to income ratio of over 50%.
· Lot Rent – Low at $225
· Delinquency – 125% of bill-out
Rental Portfolio: We had to get creative with these communities. First, we made the decision to convert all the rental homes to homeowners over a period of 6 months. This would serve to maximize the value of the portfolio, as our calculations showed its overall value would increase by converting the park owned homes – even with losing the home rent. In order to convert all of these rental homes we had to make the sale price of the home extremely attractive – often times we were losing money based on the value of the home. But, we increased their site rent from $225 to $300 and eliminated all rental home expenses. In this market, site rental NOI is valued at a 6 to 7% capitalization rate, while the home rental NOI is valued at a cap rate of 12%.
It truly became a win-win situation for all - a resident was able to purchase their home for below market value, keeping their monthly payment low, but we were able to increase the overall value of the Communities by bringing the site rent up.
Low Lot Rent: For the existing homeowners, we increased the site rent from $225 to $250 at all 3 communities. We found a great manager and dramatically cleaned up the communities, providing residents with greater aesthetics, services, and value they had not been receiving. Our newly installed manager also started to hold residents accountable for the condition of their homesites and ensured that rules were being followed – in turn, positively changing the entire attitude and look of the communities. As such, even though we did not go in and spend a lot of money in capital improvements, enough was done to warrant the rent increase. We now have a blended site rent of $265-$270 – a vast improvement from the original $225.
Delinquency: The previous managers at these properties allowed delinquencies to pile up, until they superseded the monthly billout every month. With the hire of the new manager and with the help of our corporate team, we enhanced collections efforts, and, with the help of the stimulus and unemployment checks, many residents were able to reduce what they owed. We also had a number of move-outs (no evictions due to the moratorium), due to the increased attention to their delinquency.
Overall, we took these properties from an uncertain future to a stabilized asset base that will be hitting the market soon.