Manufactured Home Community:
By Rick Stuart, CAE
What do you do with a 105-acre tract of land on the
edge of town that has been vacant for decades? You build a manufactured home
community, of course. So went the thought process of developer Ray Thurlow.
A manufactured home community is a typical
residential subdivision except the homes are all manufactured in a factory
versus being stick-built on site. Advantages of using manufactured homes are:
1.
Built
in a plant, a controlled environment, so the materials are not exposed or
subjected to adverse weather.
2.
Homes
are constructed with standard features and then are modified based upon the
plan or model selected by the purchaser.
3.
A
considerably shorter time frame between home selection and actually moving in.
As Thurlow progressed in his plan, he asked Ted Neuburger to become his partner. Neuberger stated he wanted nothing to do with these homes, but by his own admission had not been in a manufactured home for 20 years. After walking through several units, he changed his mind. This perception or stigma would show up again during the proposed zoning change hearings.
Deciding how to effectively use the land started in
the late 1980’s. Over the last 25 years, the developers found a need for more
affordable housing. Young families could not afford a typical site-built home
and often purchased older homes with needed repairs. Thurlow believed the
property’s good access to the interstate and shopping made a good location for
starter homes.
New manufactured homes provide a maintenance free
exterior. All homes have vinyl siding, insulated thermal pane windows, steel
insulated doors, zone three insulation (a cold climate package) and 2” by 6”
framing. The new home relieves the homeowner of soon facing any necessary major
repair cost. The homes are built at the factory according to the National HUD
Code that became effective in 1976 and then are inspected by the City Building
Inspectors. City inspectors visit each site several times to approve the
concrete, foundation, wiring, garage and then make a final inspection.
Having driven by
this property for the last 16 years, the appraiser in me has often wondered why
the land was not being utilized. Then came the question: What would be the
highest and best use?
Determining the highest and best use is one of the
first steps in the appraisal process and can be the most challenging. Devin
Sprecker of Robert Taggart and Associates conducted the appraisal and shared
the portion of the appraisal relative to the highest and best use and the
analysis of the potential absorption rate. Portions of the appraisal are given
below.
“The definition of highest and best use is that use
which at the time of appraisal is most likely to produce the greatest net
return to the land and buildings over a given period of time. The steps which
help the appraiser reach the conclusion are as follows:
1.
Legally permissible usage – We have concluded the potential for zoning of the
subject is broad with adjoining properties zoned residential, industrial and
commercial.
2.
Physical characteristics and limitations – The size, topography,
location, visibility and access lend themselves to related uses in conformance
to those that exist on adjacent properties that have been developed to the
above uses.
3.
Off – site facilities available – All utilities and arterial street improvements
serve the property.
4.
Most profitable use of the site – The subject site has no unusual restrictions. The
zoning, ‘PUD’ Residential, is not broad enough to permit flexibility in use.
However based on the zoning of adjoining property and previous zoning of the
subject it is our opinion a change of zoning to industrial or commercial could
be obtained. The site size is large enough for most; if not all permitted uses.
There is abundant industrial zoned land in the area with limited new
development due to difficulties in attracting industry to Topeka”.
“There are large
mobile home parks in the immediate vicinity supporting a trend to average or
below quality development and middle income residents. The subject development
as proposed will market to middle income families with modular home improvements
on crawl spaces or basements with attached garages. This is the type of
development the area best supports”.
“We have concluded
the highest and best use of the land, as if vacant or as improved, would be for
a single family subdivision of fair to average quality improvements, marketed
to the lower middle income sector such as the proposed use”.
The independent
appraisal reviewed other single-family residential subdivisions to establish an
absorption rate for the subject. An analysis of five (5) other subdivisions,
indicated an annual absorption rate from 12 to 50 lots. The higher absorption
rate was a subdivision with lower improved property values. “The estimated
property values as improved in the subject subdivision are to the low end of
the range from all subdivisions considered”. Based upon this analysis, the
projected absorption rate for the subject property was 35 lots annually.
An option was taken on the land in the spring of
2000 with a contingency clause based upon successful re-zoning and the
availability of financing. The purchase was completed in January 2001 and the
plat of the land calls for 340 lots to be developed or approximately three (3)
lots per acre. Raw land costs were $4,000 per acre and the developers chose to
pay for the site improvements instead of having special assessments. After
constructing the streets, curbs and all site improvements for the first 35 lots
(Phase 1), their investment was at $15,000 per lot. The standard lot size is 75
foot frontage and a depth of 125 foot. There is a 90 foot greenspace between
the city street and the first row of lots.
Phase 2, containing 22 lots, started in February
2002 and will be ready by mid-year. Phase 3 will then start in the spring of
2003. The subdivision started sales in November of 2001 and in the first four
(4) months had 16 sales. They had planned during the start-up period to sell
two-three units per month and have a breakeven point of three (3) units per
month. The developers believe they are ready to turn the corner and that sales
will increase and that the project will sell out in five (5) years, or an
absorption rate of 68 lots per year. This rate exceeds actual absorption by
comparable subdivisions and almost double the fee appraiser’s projection.
Currently there are 10-12 couples per week visiting the sales office. The
anticipated net return for the project is 4%, which they state is the national
rate for builders.
Finding a manufactured home builder that would work
with them was difficult. All homes have a two-car attached garage and would
require some modification by the homebuilder. Approximately 90% of all floor
plans would not fit the building restrictions of the subdivision. It took
several modifications, but a potential home purchaser has eight (8) options.
These options can be seen on their website at www.grandoak.net. The homebuilder
has now started to offer some of these modifications to dealers.
Original plans were for all the homes to have a
crawl space. All purchasers want a full basement but only about 50% can qualify
for the additional financing. Calculating the purchase price is very simple.
Each of the eight (8) option sheets shows the price, monthly payments
(principal, interest, taxes, property insurance and mortgage insurance) and the
basement cost if chosen. Home buying made easy!
Financing of manufactured homes has changed in the
last few years. Historically not all lending institutions would loan on this
type of home and if so, the down payment was larger, the loan rate higher and
the loan term shorter than stick-built homes. A large share of the loans was through
the home dealer. The developers, working with a local lending institution, uses
an FHA loan of 30 years with 3% down and the same interest rate as given to
stick-built homes.
Based upon market research, the anticipated target
market was for young families. Although the young families are indeed buying, a
large market is the semi-retired and the retired groups wanting to downsize.
Information provided by the Manufactured Housing
Institute (MHI), states that 29% of retirees reside in manufactured homes. The
manufactured home industry believes with the future retirement of the “baby
boomers”, that this percentage will increase. MHI statistics also state that
17% of all new homes built in 2000, were manufactured homes. This percentage is
up from 11% in 1996 and 13% in 1997 and 1998.
Considering that a manufactured home community is
not a typical land use, the request for a zoning change met with opposition.
The 90 days projected for the zoning change turned into almost one (1) year. The
East Side the home community abutted up to a 15-20 year old subdivision with
home values in the range of $150,000 - $225,000.
Adjacent property owners were not receptive to
having a “mobile home park” as their neighbor. The stigma of what a mobile home
used to be versus what a manufactured home currently is, had to be overcome.
Often adjacent property owners complain that manufactured homes close to their
property create a loss of value. “Manufactured housing now appreciates in value
when it is sited in a good location, is the beneficiary of routing maintenance
and care, and is supported by a stable housing market. According to Dr. Carol
Meeks of the University of Georgia, the life of a new, year-round lived-in
manufactured home is close to 55.8 years”.
Several of those who had opposed the re-zoning have
since visited the home community and have been surprised at the quality of the
homes and at the home community’s appearance.
Land is purchased, zoning is in place, and a home
manufacturer is on-board, now they need someone to sell the homes. Some
realtors are hesitant to sell this type of home and still think about the homes
being the “mobile homes” of the past. Realtors Stan and Brenda Zimmerman became
the lead realtors for the project. Also helping to sell the homes is Jeff Dietz
who formerly was a salesperson for the home manufacture.
The realtors have stated it is difficult for co-op
brokers to be interested because of the stigma. It will take a few years of
sales and for some of the properties to resell before these attitude changes.
They are hoping that other realtors realize that, “All houses are manufactured,
just some of them are on-site and some at a plant”.
The developers of this home community feel like they
are pioneers as no one in the area has even considered this approach to
housing. Their ability to deliver a high quality product at a low cost, the
increasing the number of manufactured homes being annually purchased and the
market research that retirees and not just small families are finding these
homes attractive and affordable, may indeed show they are tapping into a future
market.