News & Notes Archive - July 2007
A spate of new laws mandating all new MH be equipped with weather radios suggests today’s MH still can’t measure up to site built homes in violent weather — Oh, how wrong they are.
Early this month Indiana’s Governor Mitch Daniels traveled to a mobile home park in Evansville for the ceremonial signing of a bill that requires all new manufactured homes be equipped with weather radios that provide emergency alerts to pending violent weather such as tornadoes. The law came on the heels of a 2005 twister that devastated a nearby MH park and left 25 dead across a swath of SW Indiana. The state has 1200 mobile home parks.
That’s all fair and good. All homes in Tornado Alley and Hurricane Country, whether site-built or factory-built, should have those radios. But the implication is today’s manufactured homes are less able to handle violent weather than site-built structures. This may be true for manufactured homes that are not properly installed on suitable foundations, but that leaves a very substantial percentage of MH that are built at least as strong or stronger than their site-built counterparts.
Hard to believe? Please read on. A couple of months ago I spoke with George Porter, the DE-based consultant and nationally recognized guru on all things to do with MH installation and certification for MH installers. Here’s an excerpt:
“Here’s a story you’ve probably never heard, because good news never travels. Three years ago, a tornado hit the town of Providence, KY, not far from Paducah. Destroyed a shopping center and a high school and tore through a 36 home subdivision that was only a few years old. Blew the homes all to smithereens. Only six homes were left standing. Turns out these were the only six manufactured homes in the entire development! Every single site built home blown away. This was wind zone 1. The tornado winds were F2, that’s 120 mph. Now, sure, they were missing some siding and one had a broken window but they did not move. They were properly installed in Windzone 1. That’s how good it can get when you install a manufactured home properly.
“When Hurricane Charley roared across Florida in 2004, sure, you saw a lot of older manufactured homes that were kindling, and that made for great news footage, but the real story that was slow to emerge was, during that terrible year of storms, not a single manufactured home installed after 1994 was blown away or destroyed. What’s really neat is the manufacturers and the engineers have worked so hard to make these homes bulletproof against God knows what, that they have turned out a really good product. And if you do it right, you’ve really got something. Better than site built.”
Just in time for this year’s Hurricane Season — Florida mixed messages:
Indiana is not alone in sending out a mixed message. On July 9th, the Pensacola, FL News-Journal headlined a story “Never ride out a storm in a manufactured home.” But several paragraphs into the story, the article quotes an assessment by the U.S. Dept. of Housing & Urban Development that concluded “It’s a fact that homes fitted with impact resistant windows, reinforced garage doors and hurricane shutters held up well in hurricanes Charley, Francis and Ivan in 2004 and that these new homes are considered safer than older models.”
The article continues: “But to avoid sending mixed messaged to residents that is safer for residents in newer homes...the warning is the same for all manufactured/mobile home residents.”
Here is an excerpt from the Manufactured Housing Association of Oklahoma’s informative web site. Their concern is more tornados than hurricanes, of course:
Hurricane Andrew struck the southern tip of Florida and the Gulf Coast regions of Louisiana in late August 1992 with devastating winds in excess of 150 miles-per-hour. The third strongest hurricane ever to strike the United States, Andrew was designated a Category 4. Thousands of homes, both site built and manufactured, suffered extensive damage and destruction from the force of the storm.
Within weeks of the storm, the manufactured housing industry endorsed appropriate improvements in the wind resistance/safety of manufactured homes. After many months of effort by the industry to negotiate proper improvements, the Department of Housing and Urban Development (HUD) issued revisions to the wind safety provisions of the HUD Code, which became effective July 13, 1994.
In areas prone to hurricane-force winds (known as Wind Zones II and III, according to HUD's new Basic Wind Zone Map) the wind safety standards require that manufactured homes be resistant to winds up to 100 miles-per-hour in Wind Zone II and 110 miles-per-hour in Wind Zone III. In both of these zones, the standard for manufactured homes is now more stringent than the current regional and national building codes for site-built homes located in these wind zones.
Note: For much more on the strength of MH vis a vis violent weather, please visit http://www.builtstronger.com created by the FL MH Association. I guarantee you the info on that site will give you a lot of confidence in today’s manufactured homes. Here’s just two factoids from that site:
- Every factory-constructed manufactured home sold in Florida not only matches the strength of site-built homes, but actually exceeds them by as much as 25%.
- Factory-built homes manufactured and sold in Florida meet criteria based on the highest wind safety standard of them all, known as ASCE 7-88. Site-built homes must conform only to state or local requirements for strength and wind-resistance.
Interview: 15 minutes with...Deane Sargent
Note: In my role as an industry observer and consumer advocate I speak with people at all levels of the manufactured home industry (MH) to gain insights I share with my readers to help them be better informed. Some I have interviewed for a one-page column that runs in an industry trade publication. In return the magazine runs an ad for the Grissim Guides. No money changes hands. I insist on this. Aside from book sales, I neither solicit nor accept a dime from the industry, and my readers have my assurance I intend to keep it that way. Here’s this month’s interview:
When mobile home park resident groups consider buying their park, Deane Sargent is the national go-to expert they’re most likely to call
Who: Principal, PMC Financial Services, Hillsborough, CA, providing organizational and financial consulting for resident groups, nonprofit corporations and affordable housing providers seeking to purchase manufactured home parks.
Background: Age 63, born and raised in Grand Rapids, MI. Father a career exec with Marathon Oil Co., mostly as a crude oil trader (“We moved around a fair bit, mostly in the Midwest.”) Attended Miami U. of Ohio, graduating in ’66 with a BA in economics. Following a three-year Army hitch (OCS, stationed at Fort Riley, KS, where he met his future wife Cora), moved to CO, went to grad school at U. of Denver, earning an MBA in ’71, becoming a CPA. From ’70 to ’74 worked for Denver-based corporate auditing/consulting firm Peat, Marwick, Mitchell (precursor of KPMG), first as a tax supervisor, then as a tax planner (“sophisticated tax shelters”) before deciding “the CPA career path wasn’t for me.” Went to work for one of his clients, Philip Anschutz, a low-profile billionaire (“land, oil wells, railroads, lots of stuff”), leaving in ’78 to join a CO real estate and development partnership, “but the timing was poor: interest rates were running 19%.” In ’80 accepted an offer to become an investment banker, first with Kirchner Moore & Co., and later Newman & Associates, a small private firm mostly focused on municipal bonds. Ended up specializing in tax exempt municipal bonds for affordable housing—“That was a great business until ’86 when the IRS did away with tax-exempt affordable housing—time to move on.”
Relocating to San Francisco in ’86, briefly ran the West Coast office of an FHA mortgage lender before moving in ’90 to Pacific Securities, a small Bay Area investment bank. In ’92 he learned of a 40-site NH land-lease community that had been trying to buy itself for years—“I got intrigued.” When his employer showed no interest, he went off on his own, setting up shop as PMC Financial (for a time affiliated with Presidential Mortgage Company, a local thrift and loan). In the spring of ’93, after five months work, Sargent found the money and successfully engineered the conversion of the park, now named Granite Brook, to a resident owned corporation. “I thought to myself, after 25 years of screwing around, I finally declared my major—I really want to do this.” In the years since, he has done 35 conversions around the country “and been involved in 300 to 400 other attempts.” The Sargents have two children, James, 27 (attending U.C. San Diego med school) and Elizabeth, 31, a San Diego-based coordinator with the Intervarsity Christian Fellowship.
- Q: You are recognized today as the country’s premier consultant specializing in park conversions. Are you selective about which resident groups you choose as clients?
- A: Very much so, because I’m paid nothing until a deal closes, and most take two to three years of nursing. I have to first ask myself, Do these people have the wherewithal, the leadership and cohesion to get this deal done if we waltz together for the next year or more? And, Is the park’s owner willing to give the residents the time to come up with a deal that meets their needs? Yes, I have investors ready to make share loans, and community development lenders standing by, and Credit Suisse to make first mortgage loans, as long as I don’t deliver a screwed up deal. But I would just as soon walk away. So you’ve got to know early if a deal can get done.
- Q: What kinds of park conversions are involved?
- A: There are many variations, but they fall into four generic patterns: One is subdivision/condo/fee simple conversion. Someone takes the park and divides it into individual ownership interests and sells those interests to the ownership group. That’s the Holy Grail. The problem is, in any park there are tenants with money and credit, and others with neither. It’s a time sump with a low success rate, so I don’t go near it. The second is what I call a market rate mutual benefit corporation. The residents form a corporation which buys the park. Participating residents are issued shares. I organize and finance the deal, usually with a first mortgage loan secured by the dirt. Some residents have the money to buy their share. For those who don’t, I tap investors or community development lenders who loan them the money at market rates. Those rates are higher and the loans are relatively illiquid but they’re superb loans—I’ve never had a default.
- The remaining two types fall into more benevolent funding. One is a limited equity coop, a creature of favorable funding, not market rate money. It uses subsidized dollars through grants, community loan funds, federal programs and the like. Typically it’s a five or six lender package where the residents end up putting up $500 to $600 a head. But it comes with strings. Usually the lenders’ priority is preserving affordable housing, not creating wealth. For example, they may require 80% of the residents to be earning below 80% of the region’s median income. Last is the 501C(3) affordable housing conversion: a non-profit buys the park with non-recourse money—grants, HUD-money, donations—and leases to the tenants, acting as a benevolent operator. The residents gain some stability and security but they don’t own the park. My focus is on market rate conversions, for reasons that are partly philosophical and partly practical.
- Q: You suggest that often resident deals have advantages for park owners that third party investors can’t bring to the table. Can you give examples?
- A: Sure. Ordinarily the proceeds from the sale of a park must be reinvested within 45 days to avoid paying capital gains tax, but there’s an IRS section that allows you 24 to 36 months to reinvest if your property is condemned. Under a process called friendly condemnation, worked out with the local municipality, you can gain that longer window. Plus, friendly condemnation legally voids the requirement for the seller to pay substantial pre-payment penalties that are often a part of existing loans being paid off with the resident purchase. Elsewhere, I’ve had groups agree to deal with infrastructure issues that might have driven other buyers away, and or drop lawsuits as an owner’s condition for purchasing the park. Last, my fees are paid by the resident group and the seller pays no commissions to real estate brokers.
- Q: What message do you want to get out to park owners?
- A: Resident deals really can work. They can solve many of an owner’s problems, along the lines we’ve discussed, and if a resident group can demonstrate its credibility, it’s worthwhile for owners to give them a shot.
Note: Sargent has created an educational DVD, principally for interested resident groups but useful for park owners as well. To obtain a free copy, email dsarg7344@aol.com. Put “DVD Request” in the subject line and provide your mailing address.