Investors Rush to Manufactured Housing, Other Alternatives

Manufactured housing communities are poised to be an investor standout in 2021, as investors look to alternative assets to generate higher risk-adjusted, long-term returns and to diversify their portfolios.

A new report from JLL’s capital markets group notes that transaction volume for manufactured housing communities increased 32.2% between 2019 and 2020, from $3.2 billion to $4.2 billion, and valuations are increasing. Zoning restrictions and core development expansion have constrained supply in many markets, pushing net demand upward. 

Alternative Assets Draw More Interest 

While alternative assets like manufactured housing are a much smaller scale than traditional assets, interest in alternative sub-classes is rapidly growing and isn’t likely to be a passing phase, JLL experts say. In particular, investors are turning their eyes toward property sectors like self-storage, life sciences, medical offices, data center assets and manufactured housing, which grew 32% year-over-year. Altogether, those asset types were responsible for more than $47.9 billion in transaction volume last year.

“Prior to the pandemic, investors were already expanding their focus and allocation to alternative assets, with the alternatives sectors’ share of overall transaction volume rising to nine percent between 2017 and 2019 versus six percent from 2005 to 2007,” said Matthew Lawton, JLL capital markets co-head of investment sales advisory group. “Underpinned by secular and cyclical drivers, many of the alternative asset classes are expected to generate among the highest risk-adjusted returns on a long-term basis of all property types.”

Large institutional investors are increasing allocations in alternative assets, resulting in greater liquidity, and established operators are also dipping their toes in the pool. The smaller volume scale of alternative assets also allows investors to enter CRE ownership, the report notes.

All alternative sub-classes JLL examined showed positive outlooks for continued growth. Data centers will benefit from increased demand over the next year while cold storage will continue to see strong private equity and institutional investor interest. In the life sciences space, JLL predicts 16% growth for brand-name pharmaceutical manufacturing through 2025, bolstering the life sciences sector’s outlook, and asset classes like senior housing, single family rentals, and medical buildings are expected to grow as well.

 “We are seeing a big uptick with core investors educating themselves and moving capital into the alternatives space, as they evolve their portfolio allocation strategy,” said Coleman Benedict, co-head of JLL’s investment sales advisory group.  “At the same time, what is tempering their ability to make big strides is the fact that many of these sectors are still quite small in terms of investable stock, yet demonstrating significant rent growth and occupancy demand drivers as disruptive market forces play out.”