Manufactured Housing Valuations Hit All-Time High

Valuations for manufactured housing communities hit an all-time high in the second quarter, buoyed by a surge in activity by institutional investors flooding the space. 

Early Q3 data shows that transaction volume has reached the highest trailing four-quarter level on record at $4.5 billion, and research from JLL suggests occupancy and rent will grow at a similar rate as demand for affordable housing continues apace.

“The need for affordable living options within the aging millennial population along with America’s aging 55+ population present favorable demand tailwinds that are expected to drive mid- and long term demand for manufactured housing and promote innovation within the sector,” a new report from JLL on the manufactured housing sector notes. “Beyond the affordability component, advancements in various technologies and the utilization of recycled materials are a few of the ways manufacturers are reducing energy consumption and waste, further attracting investors who are ESG focused.”

Valuations hit a high of $46,970 per pad, and stabilized occupancy rates peaked at 95.4%.  Rent growth also has increased significantly since the onset of the pandemic to 2.6%, pushing average monthly rents to a historic high of $800. Collections are at a 1 to 4% discount to contract rents, JLL says.

Meanwhile, there’s (nearly) nary a delinquent loan to be found: they account for just 0.3% of all loans in the sector. At the peak of the last recession, delinquent manufactured housing loans hit 5%.

Cap rates have also compressed to 4.8% in the second quarter, a 121 basis point decline year-over-year. This compression underscores “increased investor confidence in the performance of the sector going forward,” JLL analysts say.

Year-over-year data indices show that three-star properties had the biggest decline in cap rates, decreasing 86 basis points, while two-star properties slumped 18 bps and four-star properties decreased 46 basis points. Three-star properties also posted the largest increase at $11,800 per pad, an increase of 22% year-over-year. Two-star properties increased in price by 16%, while four-star properties climbed 6%.

Institutional investors have flocked to manufactured housing as of late, bucking a longtime trend that mostly involved private buyers. Institutional investors now account. for 23% of volume in the past two years, according to Real Capital Analytics. Four of the top 10 buyers of manufactured housing over the past two years are institutional investors. And typically, such investors buy in bulk: 83% of acquisitions by top institutional investors in the space last year involved portfolios.