A.CRE

Manufactured Housing Community

A community of manufactured housing. MHC’s may be located in various areas, including the suburbs or the edge of large cities. MHC’s typically offer amenities such as community clubhouses and pools. See also Manufactured Housing.

Putting ‘Manufactured Housing Community’ in Context

Horizon Manufactured REIT, a publicly traded real estate investment trust specializing in manufactured housing communities (MHCs), has recently acquired Desert Breeze Estates, a 150-pad manufactured housing community located in a suburban area outside Phoenix, Arizona. This acquisition aligns with the REIT’s core-plus investment strategy, which focuses on stabilized communities with potential for moderate operational and amenity upgrades to enhance returns.

Property Overview

Desert Breeze Estates spans 30 acres and includes 150 leased pads for manufactured homes. The community, built in 1998, features a mix of single- and double-wide homes, with an average pad rent of $550 per month. Amenities include a clubhouse, swimming pool, playground, and walking trails, making it attractive to families and retirees. Occupancy is strong at 95%, reflecting the high demand for affordable housing in the Phoenix metro area.

The Investment Context

Horizon Manufactured REIT purchased the property for $12 million, representing a cap rate of 5.75%. This was considered favorable compared to other comparable sales in the region, which were transacting at 5.25% to 5.5% cap rates. Desert Breeze Estates generates an annual net operating income (NOI) of $690,000.

Operational Enhancements

To execute its core-plus strategy, Horizon plans to invest $300,000 in capital improvements over the first two years. These upgrades include:

  • Renovating the clubhouse with modern finishes.
  • Installing a solar-powered street lighting system.
  • Expanding the playground area to include updated equipment.
  • Adding fiber-optic internet connections to all pads.

The REIT projects these improvements will allow it to increase pad rents by an average of 5% annually over the next three years, resulting in higher NOI and property value.

Financial Projections

With the upgrades and rent increases, the REIT anticipates the following performance:

  • Year 1 NOI: $690,000 (current)
  • Year 3 NOI: $759,000 (reflecting rent increases and occupancy stabilization)
  • Projected Value at Year 3: $13.2 million, assuming a stabilized cap rate of 5.75%.

Why MHCs Matter

Desert Breeze Estates illustrates the appeal of MHCs as an asset class. Manufactured housing communities offer stable cash flows, as residents typically own their homes and lease the land. This arrangement creates a “sticky” tenant base since moving a manufactured home is costly. For Horizon Manufactured REIT, this investment provides predictable income with the potential for long-term value growth.

This hypothetical case demonstrates how a REIT specializing in MHCs can identify opportunities in core-plus assets to enhance performance through strategic upgrades, while benefiting from the sector’s inherent stability and growing demand for affordable housing.

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