Industry Update - March 10, 2004

I thought you might benefit from several pieces of news that have caught my attention recently, along with a few other tidbits.

Standard & Poors lowered ratings on 161 classes of manufactured housing loan backed bonds issued by Green Tree Investment Holdings LLC, formerly Conseco Finance Corp.  The lower ratings reflect the continued poor performance of the underlying pools of manufactured housing contracts and the resulting deterioration of credit enhancement, S&P said.  At the same time, ratings were affirmed on 22 classes of Green Tree manufactured housing transactions and removed from CreditWatch negative, where they were also placed January 9th.  In conjunction with the depressed repossession resale market, these factors have resulted in the further weakening of recovery rates associated with manufactured home loans.  As the glut of repossessed manufactured home slowly is absorbed into the market recovery rates will eventually improve.

Manufactured Home Communities (MHC), a company that has caused our industry a fair amount of heartburn in the Pacific Northwest is in the news again.  Homeowners in four Delaware manufactured home communities are trying hard to understand the latest leases offered by MHC. Residents in Aspen Meadows, Camelot, Mariners Cove and McNichol Place are questioning what the new leases proposed to them over the past month by MHC representatives really mean. Meetings have been set to air out Residents’ concerns and, hopefully, reach some better understanding of what MHC is presenting to its tenants.  Few homeowners in MHC communities trust the large Chicago-based, investor-owned landlord and its nominal subsidiaries, MHC Financing Limited Partnership and MHC Operating Limited Partnership. That mistrust goes directly to how the landlord has established rents over the years and how it is trying to raise rents now through the issuance of confusing new leases.

In Mariners Cove, residents have recently been offered new leases with rent hikes ranging from $40 a month to $240 a month, explained Jay Estep, president of the tenants association.  MHC has told homeowners in Aspen Meadows, Camelot, Mariners Cove and McNichol Place that they don’t have to sign the new leases. But MHC has advised those homeowners that if at least 100 of them in each community sign the leases soon, the leases will stand. If not, negotiations will stop.  Questionable leases are nothing new to residents in MHC-owned communities. Since 2001, MHC lease provisions have been the subject of legal debate, court opinion and state appeals. Seven former MHC lease provisions have been declared illegal within the context of the new Manufactured Home Owners and Community Owners Act signed into law last June.  How can we expect to attract new homebuyers into land-lease and rental communities when the biggest players in our industry are treated their residents like this? 

Although Oregon and Washington both ended 2003 with manufactured home production and shipments declining slightly from 2002 levels there are many bright spots on the horizon.  The most notable is the decline in declared repossessed manufactured homes by the major lenders, which is reported to be 54% lower than a year ago.  This reduction is tricky to analyze when you consider how many homes formerly designated as repossessions are still for sale.  They are no longer declared by the lenders because the lenders sold them to community owners or retailers, but they're still out there and empty, competing with the new home and resale markets.  As I mentioned in my previous Industry Update, the total number of these homes is hard to quantify but few doubt it's effect on the marketplace.  Nevertheless, we are in the "selling season" and with the slow improvement in chattel financing we should see this inventory shrinking as more and more homebuyers come to realize what a terrific bargain these homes are.  A nice 3 bedroom 2 bath, energy efficient home in excellent condition for $35,000.00, and they're everywhere.  I swear, people don't know a great buy when they see one!

The Salem Manufactured Home Show concluded last Sunday and the feedback from show attendees has been interesting. Attendance was about 20% lower than the 2003 show but manufacturers and retailers said it was a very successful show, with more QUALIFIED buyers attending than in recent memory.  While the homes truly looked beautiful (amazing, in fact), many community owners and retailers (and consumers) shared their displeasure with how few affordable homes were on display.  A couple of paying attendees  asked for a refund because they came to see a large selection of inexpensive homes but only a few were on display.  Please, don't misinterpret this observation.  I am constantly amazed by the quality and beauty of today's manufactured home, I just wonder how many of these mobile-mansions are being sold retail in comparison to the number of inexpensive manufactured homes sold.  Have we lost site of who our customer is and where our market is?  Have we abandoned the land-lease and rental communities in favor of a market where we compete head to head with site-builders?  Do we remember where the volume and profits came from?  Can't we effectively serve both markets?  If we aren't focused on offering AFFORDABLE housing, we're done---toast---finished. Quoting Neal T. Haney, President of Manufactured Housing Communities of Arizona, "...remember that affordability is the foundation upon which our industry was built and will prosper again".  How true.

Warren Buffett didn't make it to the Salem show (big surprise) but he actually sent a hand written note to Don Miner at OMHA thanking him for the invitation and thanking me for the article I wrote about him recently.  Is there any wonder why this guy is so successful?  A hand written note....how cool.

Finally, it saddens me to report that Virginia Choate passed away last night.  Many of you may not know who Virginia is, but since 1986 she has been the salty, outspoken, energetic and tenacious member of the Oregon Manufactured Housing Association's staff, most recently as the semi-retired bookkeeper for OMHA.  If you had met Virginia just once you'd never forget her.  She had a great personality, an opinion on everything and a wicked sense of humor, but most of all she would do anything, absolutely anything to help our industry.  She was also a talented actress, doing television commercials and staying active in local Salem theater.  Virginia was looking forward to being on stage again, playing the lead in "Driving Miss Daisy" when she succumbed to a hard fought but overwhelming battle with cancer.  Virginia, you were one of a kind, and we'll miss you darlin'. 

Greg Harmon - President
Commonwealth Real Estate Services
E-mail: greg@cwres.com
Telephone 503.244.2300 Ext. 101