PHOENIX-Investor interest in manufactured housing communities in Arizona is stronger than it has ever been, according to Russ Warner, a first vice president with Cassidy Turley/BRE Commercial. The state’s growing senior population, coupled with the sector’s history of steady performance, is attracting investors from across nation.
“Investors who own mobile home parks want more of them, and those who left the sector are coming back to it because they enjoy the stability it offers,” Warner tells GlobeSt.com, noting that properties trade for cap rates ranging from mid-6% to mid-7%.
In the past two months, Warner has sold three manufactured housing communities to out-of-state investors. One of the investors had shifted to medical office buildings before deciding that he preferred manufactured housing instead. He did a 1031 exchange out of the MOBs into mobile home parks because they offered a lower risk. Similarly, the other buyer had been focused on self-storage for the past several years, but decided to re-enter the manufactured housing sector.
The buyers asked Warner to track down investment opportunities in the Phoenix metro area. “Compared to other markets, Phoenix has fewer mobile home parks, and they’re usually nicer,” Warner says. “Also, the parks here typically have higher rents than other markets.” Moreover, he contends that demand for manufactured housing spaces in the Phoenix area is stable, if not growing, due to the large senior population.
The properties, which traded for a total of nearly $20 million, are located in suburban Phoenix. They include: the $3.35 million White Sands Estates Mobile Home Park, a 69-space senior park in Apache Junction, AZ; the $9.24 million Apache Junction Mobile Home, a 192-space senior park in Apache Junction, AZ; and the $7 million Mesa Village Mobile Home Park, a 201-space senior park in Mesa, AZ.
Most MHPs in Arizona are land-leased investments, where individuals own the mobile homes and the landlord owns the land, site improvements and common amenities. A “mobile home park” is differentiated from an “RV park” by the sizes of the spaces and the size of the mobile units (Arizona Statutes define a “mobile home” as containing 400 sq. ft. or more of living space).
Warner contends that the income stream from most mobile home parks is vastly more stable and secure than the income stream from apartment investments, for example. In fact, most parks boast average occupancy rates of 90% or higher.
In most cases, tenants in mobile home parks own their own mobile home. They likely pay $300 to $400 per month for the space in the park plus electricity, water, sewer and trash. In a typical year, they receive notice of a rent increase of $10 to $30 per month.
The tenant is essentially a captive audience to the rental increase because he must either first sell, move or abandon his mobile home. Moving usually isn’t a viable option since it costs $5,000 to $10,000 to relocate a mobile home.
“In general, most investors don’t understand manufactured housing well, but those who have invested in the sector keep coming back to it,” Warner says.
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