Last week I attended a very rewarding MHI 2006 Congress & Expo for Manufactured and Modular Housing along with Adam Cook-VP and Christina Mays-Asset Manager of Commonwealth, preceded by the first annual National Resident Relations Forum sponsored by MHI’s National Communities Council.  The theme this year was “Building Dreams,  One Home At a Time”, and  I wanted to share a few of the highlights from the conference with you.
 
There were a couple of common themes echoed by all of the participants throughout the three-day event.  The first was undoubtedly the questionable health of the manufactured housing industry and what we can do to improve our image across the country.  A few minutes were wasted on finger pointing, but mostly the entire conference was in agreement that we all must work harder to make the home buyers experience a much better experience than it historically has been.  A speaker from JD Powers & Associates gave numerous examples of how customers never forget a poor buying experience and how we must respond to customers’ expectations.   MHI has contracted with JD Powers to conduct research and interview hundreds of manufactured home buyers about the product and the purchase.  One lender representative said most Wall Street analysts he knows get educated about the manufactured home business by watching Fox News (hurricanes, tornados, FEMA etc.) and he reminded us that the public’s image of manufactured housing does not resemble what we know to be true about the product.   It brought to mind how important our NW Pride image advertising program is (www.nwpride.org) and how we would benefit from launching a NW Pride-type campaign nationally.  This is being considered but only after the results of the JD Powers & Associates research is completed, which should be early next year. 
 
A second speaker, from CapGemini in Atlanta was an expert on business transformation and change.  He works exclusively with large corporations and industries undergoing change or transformation and he enlightened many of us about the importance of change and how launching change properly can pay great dividends and doing it wrong will cause enormous problems for companies.  Jack Wells, the famous CEO of General Electric used to say something like “the change train is leaving the station and we’d like to have you on-board” and our speaker drove home the point that constant change is good and never changing spells doom.  He pointed out that when Richard Branson started Virgin Atlantic Airways he realized day-one that he was entering the hospitality business, not the airline business.  Our speaker used that comparison and drew similarities to manufactured housing.  Baby boomers want amenities, activities, features and a fun/comfortable/active lifestyle, not just a spot to plant their home and a cheap home to plant on the spot.  The most successful manufactured home community operators in the country have embraced this philosophy and are creating new ways to re-invigorate their manufactured housing communities.  Attracting new residents is highly competitive and it takes imagination and a sense of style.  We came away with a wealth of ideas on how to re-invigorate some Commonwealth communities --- I hope our clients will welcome the suggestions!
 
Lenders discussed long-term leases and a variety of other assurances they will be looking for from community owners if chattel (in-park/personal property) lending will continue.  The big guns --- 21st Mortgage (A Berkshire-Hathaway/Clayton company), Triad Financial Services, Origen Financial and CU Factory Built Lending all chimed in on the state of chattel lending and the degree in which they investigate and score a loan applicant before approving financing.  There is little immediate relief in sight for chattel loan interest rates, as percentage losses on manufactured home loan defaults continue to exceed 50% in most cases - a rate far greater than all other major loan categories.  The good news is that FHA Title 1 financing reform is a top priority of MHI, and if passed, new loan limits will be raise to $68,000 and this government-insured financing will open-up a plentiful supply of new personal property financing.  Long term (10 year) leases are being debated by an industry committee which may recommend a lease that caps annual rent increases at the CPI+1% plus tax, insurance and utility pass-thrus and capital improvements.  The trade off could be a relaxing of interests rates in communities that implement this lease.  It would also include a formula for sharing the re-marketing of lender repossession expenses that ultimately would give the lender and community owner more equality with regard to repossessed homes without requiring the community to enter into a quasi-recourse agreement currently being promoted by some lenders.  We will wait and see what this committee introduces before passing final judgment.
 
The Community Attributes System (CAS) and MHVillage.com have been launched.  According to MHI, “In an effort to increase lending availability for homes in land-lease communities and eliminate out-dated rating systems, MHI created the Community Attributes System with the goal of providing up-to-date and more complete information about communities that can be accessed by lenders and appraisers.  The CAS collects a uniform set of over 75 objective attributes about a community.”  The chattel lending panel strongly urged all community owners to register their communities with the CAS. To create your account go to www.manufacturedhousing.org and click on the Community Attributes System link.
 
The highlight was Thursday’s appearance by outspoken (if not downright blunt) real estate mogul Sam Zell of Equity Investment Group, which includes Equity Office, Equity Residential, and Equity Lifestyle (formerly MHC).  Know as “the Grandfather of the Real Estate Investment Trust (REIT)” Zell is a man of un-paralleled real estate experience who has an incredible knack for predicting the real estate market.  Zell entertained and enlightened conference attendees with a rapid-fire presentation on housing, global economics and life.    He predicts a slowing, but steady real estate market, quantified why he thinks interest rates will stay low and says the baby boomers are the wealthiest generation to retire in history, by far.  He likes our business and our ability to provide affordable retirement communities with lots of amenities for the active retiree and he urged us to improve our image, citing our tendency to only make the news when things go wrong (hurricanes & FEMA again).  He preached the gospel of a global economy, trade deficits and how other countries and their economies and currencies influence our everyday life.  He shared a fascinating statistic that every day, in Saudi Arabia alone, nearly $500,000,000 (yes, five hundred million dollars) in cash enters the liquidity market and must be “placed” or invested somewhere.  Cash is everywhere these days --- and the real estate business loves cash.  It was fun to have a billionaire in the room --- especially one wearing jeans and an open collared shirt and using language most commonly heard in a biker bar. 
 
The bottom line --- people expect quality, they expect service, they expect amenities, they want a lifestyle not just a home, and they will pay for it if you deliver what they want.  Gone, for good, are the days when you can force the manufactured home buyer to do half of the work for you, and then pass the blame to a factory or subcontractor when they have a complaint.  Turn-key home sales and communities offering a “lifestyle” is what it’s all about folks, and they have made me a believer. 

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