Freddie Mac's Focus on Affordable Housing Lending Provides a Lifeline to Manufactured Housing Values
UMH Properties Latest To Tap Freddie Mac Spigot for MHC Purchases
While not considered the sexiest property type, manufactured housing has nevertheless become an important source of affordable housing for thousands of Americans, which in turn has attracted renewed interest from investors.
Now, bolstered by a recent Freddie Mac directive to increase financing purchases of manufactured housing communities (MHC), the values of communities with additional MHC capacity has increased.
In the latest such transaction UMH Properties Inc. this week closed on the second tranche of its previously disclosed agreement to expand its MHC portfolio with the acquisition of six such properties.
Freehold, NJ-based UMH purchased three communities in Indiana containing 1,254 developed homesites on 316 acres for $36.1 million, or about $28,787 per homesite. The weighted average occupancy rate for these communities is 56%.
The sale follows closings for the first tranche for two communities in Ohio and one in Michigan, for a total of $32.5 million. Those three properties contained 897 developed homesites on 177 acres, about $36,231/pad. The weighted average occupancy rate for those communities was 69%.
UMH obtained an $8.85 million loan from the Federal Home Loan Mortgage Corp. (Freddie Mac), at an interest rate of 3.96% and a 10-year maturity to buy the second tranche.
UMH had previously closed financing for six manufactured home communities, including the three communities in the first tranche, for total proceeds of approximately $43.1 million. Five of those mortgages were with Freddie Mac and have 10-year maturities with a weighted average interest rate of 4.1%.
With this closing, UMH now owns 98 communities containing approximately 17,800 developed homesites.
Freddie Mac Manufactured Housing Lending Surpasses $1 Billion
With the loans, Freddie Mac has now purchased more than $1 billion in manufactured housing community (MHC) loans in the 18 months since launching the program. The deals back more than 25,000 home sites in 23 states.
In those 18 months, the average sale price per manufactured home sites has jumped from $19,144 to $32,092 per pad site, according to CoStar COMPs data.
"MHC loans are an example of how we are serving new geographic markets where added liquidity is critical and where manufactured housing provides an important source of affordable rental housing, especially in rural and non-metro areas," notes Kelly Brady, Freddie Mac multifamily vice president.
Brady said the GSE adjusted its program to allow more rental units with its financing after hearing from community owners about increasing demand for rentals in their parks.
According to Freddie Mac research, occupancy in manufactured housing communities has trended slightly upward for six years into economic recovery.
“With an increasing affordability gap in the multifamily and single-family sectors, it seems that the manufactured housing sector is turning the corner,” Freddie Mac noted in last month in its multifamily outlook. “With the cost of this housing lower than in the conventional multifamily sector and single-family rental sector, manufactured housing offers a more affordable alternative for many households.”
“The sector has seen an upward trend in occupancy and improvement in rent growth since 2012. The trend is likely to continue in the near to mid-term as demand for affordable housing is expected to increase," according to Melvin L. Watt, director of the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae. Watt said this week the agency would continue to exclude affordable housing properties from the agencies loan caps next year.
"In 2016, we also plan to finalize a Duty to Serve rule, which will encourage Fannie Mae and Freddie Mac to innovate responsibly in the areas of affordable housing preservation, housing in rural areas, and manufactured housing,” Watt added.
By CoStar Group