Warning: Rent Raises
This past week I had the pleasure of connecting with many of the Manufactured Housing Industry’s top owners, operators, lenders and brokers while attending Educate MHC’s Networking Roundtable in Indianapolis. Among the hot topics of discussion: Buyers who are aggressively raising rents upon acquiring new communities.
In the past five years, there has been a massive influx of private equity funding, providing the fuel for the most aggressive cap rates that the MH industry has ever seen. Many of these newly formed management companies have little or no experience in the MH industry. The aggressive purchase prices come with an overly simplified playbook:
Overly aggressive rental increases built upon the premise that these higher rents will justify the aggressive purchase prices being paid, often built around projected ROI’s and quick refinancing to leverage out equity. This may sound good on paper and it is not a new approach but coupled with the aggressive upfront increases is creating and moving us towards a hostile environment.
A Flawed Approach
What we are seeing are companies acquiring Communities (mostly 2- and 3-star, sometimes distressed properties) and raising rents in the first 30 days of acquisition to what they consider “market value” – sometimes as high as $100-$200 per month to residents who are often on fixed incomes. These residents have geared their household budgets on the current rent with little or no extra funds available to withstand such an increase. Remember, we are in the business of providing affordable housing. these new rental rates are often based on nearby 4- and 5-star properties; those where rents and overall value have been continuously built over time. It’s like charging someone for an old flip phone at iPhone prices.
Responsibilities and Costs
What recourse do residents have that are now in harm’s way? Stay and pay more, try to sell their homes in a community where rents were just raised, or spend $5,000 to $10,000 to move elsewhere. As owners and operators, we have a responsibility to our residents and our industry to do what is right, fair and ethical.
Yet, many have their eyes focused only on short term results. We are seeing an increase in civil suits across the country, more media and government scrutiny, and talk of more government regulations and rent controls. Our industry is in the crosshairs and part of the platform of at least one leading presidential contender.
What can you do? If you own a Community and are considering a sale- make sure you are selling to a reputable operator. If the company, you are considering has a history of aggressively raising rents upon their acquisitions- chances are they are going to do the same to your residents.
Blank Family Communities stands by the principles that if you operate your business efficiently and provide real value to your residents you will be rewarded with a loyal resident base that is able to sustain gradual rental increases matched with community upgrades and solid management practices.