Established in 2023, Gary Group Capital is a privately held alternative asset manager and advisory firm headquartered in Chicago, IL. Our firm specializes in identifying and capitalizing on niche real estate and business investment opportunities across the US. Our current focus is on affordable housing asset classes, specifically Manufactured Housing Communities (MHC). Our primary objective is to capitalize on the stability and long-term potential of MHCs.
In future editions, we'll dive deeper into our investment approach, share stories of deals we're working on, discuss our underwriting process, analyze market trends, and much more. We will not bore you with never-ending content. Our goal is to educate you on the asset classes we're investing in while providing insights into our operations and thought processes. We value your viewership and welcome you to the party.
A manufactured housing community (MHC) operates as a land lease business, where the MHC owner owns the land, and residents own their homes. The MHC owner collects 'lot rents' and often does not own the homes on the land. The owner is responsible for maintaining the streets, lighting, landscaping, utility systems, and common area amenities. This unique business model results in low expense ratios for MHC owners and fosters a longer average tenancy for residents compared to traditional multifamily real estate.
The demand for affordable housing solutions is stronger than ever, driven by challenges in the single-family and rental markets. According to an article by MH Insider, the nation’s average MHC occupancy rate is 94% and over 21.2 million people in the United States currently live in manufactured homes (6.3% of America). Driving demand, a site-built home costs an average of $139.20 per square foot, while manufactured homes come in at a significantly lower $72.46 per square foot. MHCs play a crucial role in bridging the gap between the existing supply and demand for affordable housing.
In the United States, Manufactured Housing Communities (MHCs) have significantly outperformed other commercial property classes as indicated by company documents from Green Street Advisors and we expect this trend to continue. The chart below illustrates the notable outperformance in Net Operating Income (NOI).
The data from the Manufactured Housing Institute reveals a scarcity of manufactured housing options. To offer some perspective there are ~43,000 communities in the United States, compared to over 5 million apartment buildings. Additionally, only 6.03% of the supply was developed after 1991. New developments are especially scarce due to the challenging barriers to entry, specifically related to zoning regulations and complexities in obtaining construction loan financing. These hurdles contribute significantly to the overall shortage of new projects in the manufactured housing asset class, emphasizing the resilience and stability of existing communities.
MHCs have historically shown remarkable resilience during market downturns. For example, during the 2008 financial crisis, Sun Communities, a publicly traded MHC REIT, experienced increased occupancy, and net operating income despite unemployment rates that had nearly doubled. The chart below highlights the stability and investment appeal of MHCs.
The resilience of the MHC asset class has not gone unnoticed and institutional capital is active in the space. Given the strong economics and limited opportunities/available options, it is becoming increasingly challenging to acquire higher-quality MHCs.
The data from the Manufactured Housing Institute reveals a scarcity of manufactured housing options. To offer some perspective there are ~43,000 communities in the United States, compared to over 5 million apartment buildings. Additionally, only 6.03% of the supply was developed After 1991. New developments are especially scarce due to the challenging barriers to entry, specifically related to zoning regulations and complexities in obtaining construction loan financing. These hurdles contribute significantly to the overall shortage of new projects in the manufactured housing asset class, emphasizing the resilience and stability of existing communities.
A healthy portion of the asset class remains fragmented, with vacancies and value-add opportunities. Typically, with non-institutional owners, the vacancy in MHC is not reflective of market conditions but is due to the lack of capital to purchase new manufactured homes, a lack of relationships with home manufacturers, and an inability to provide residents with chattel financing options. GGC partners with established home manufacturers and chattel lenders to increase occupancy and income through new home purchases and lot rent increases.
We are provided a unique opportunity as much of our competition is sitting on the sidelines because of today’s volatile interest rate environment. We are focusing on acquiring 3 & 4-star MHCs in growing markets throughout the United States, prioritizing investments with higher home quality, public utility systems, and value-add opportunities. We intend to capitalize on today’s opportunity by partnering with our capital partners to preserve and grow wealth.
With over a decade of experience as top MHC lenders, our team has witnessed firsthand the growing popularity of this asset class. Leveraging our financial & operational expertise along with our strategic partnerships, we're well-equipped to identify and capitalize on high-quality MHC investment opportunities.
Thank you for reading. We value your viewership and look forward to sharing valuable insights and opportunities with you in the coming editions. If you would like priority access to our investment offerings use the button below to register in our investor portal.
MH Industry: Trends & Stats
An MH Insider article offers an overview of present trends and statistics in the manufactured housing industry. It covers essential aspects, such as the cost-per-square-foot comparison between manufactured and site-built homes (previously discussed in this article). Additionally, the article delves into manufacturing production figures, highlights major market players, and pinpoints key markets for retail sales.
Segment Overview: The current population residing in manufactured homes stands just north of 21.2 million and growing, constituting 6.3% of America’s population and 11% of first-time home buyers. Across the United States, these communities number over 43,000, providing an estimated 4.3 million home sites. The article reveals an intriguing statistic: 85% of individuals express satisfaction with their manufactured homes, marking a seven percent increase from the last survey conducted in 2018. The nation’s average site rent is $638 per month and the average occupancy rate is 94%. The market with the highest site rent is Orange County, California ($1,772 per month) and the market with the highest occupancy is Santa Clara County, California (100% occupancy).
Source: MHInsider. (2023, May 22nd) Manufactured Housing Industry Trends & Statistics. https://mhinsider.com/manufactured-housing-industry-trends-statistics/
Chattel - Refers to personal property or movable assets. Manufactured homes titled as chattel mean that they are treated as personal property rather than as real estate. This distinction affects various legal and financial aspects, including property taxes and financing options, as manufactured homes classified as chattel are not permanently affixed to the land.
When you need to stay in the know with the latest industry news and insights, the GGC Newsletter is your go-to resource.
Gary Group Capital
8 South Michigan Ave Suite 2220
Chicago, IL 60603
