Visibility, frontage, location, and proximity to major highways, quality schools, medical facilities, the central district, retail establishments, and recreational and employment centers are critical to the success of a Mobile Home Park.

A lender must evaluate the borrower’s competition by visiting the competing parks within a 5-mile radius to: 

• Assess the amenity package offered; 
• Judge the overall condition of the entrance, common areas and mobile homes in each park; AND 
• Observe the occupancy. 

In addition, the Lender should review the rental rates of the competition and review the appraisal or feasibility study to validate the borrower’s projections. 

Verify legal access to the property through

• Visual inspection, 
• Review of a survey, and 
• The review of title work. 

Confirm that the property is easily accessible.

The availability of public utilities to the site to include water, sewer, and electric. 

A level site is more likely to provide for a higher density of pad sites and have fewer drainage issues.

Evaluate the site for potential environmental constraints or contamination. 

• Lender’s on- site inspection should look for potential wetlands (for example: standing water, low areas, types of tree growth), dead vegetation, unidentifiable debris or abandoned equipment/ autos/tractors/fuel tank (operable or inoperable)/homes or buildings, endangered species (for example: gopher turtles), indications of past use related to farming, dry-cleaning, manufacturing, railroads and processing facilities, waste dump sites, defense or military operations, and mines. Read and review the Environmental Risk Management Policy for documentation requirements.

Drive around to identify any off-site properties within a 1-mile radius that could have the potential to contaminate or could have already contaminated the site you are considering financing. It is quite common for a property to become contaminated through the migration of contaminants from offsite properties. 

Obtaining a Phase I Site Assessment performed by a qualified engineer will identify any potential Recognizable Environmental Conditions (REC’s).

If  the property is located within a designated special flood area, evaluate the impacts that a weather event could have on your property’s cash flow, borrower, and collateral. Identify ways the Bank can mitigate its credit risk and decision the loan accordingly. 

MHP owners who have parks conveniently located to the beaches, rivers, and lakes are at a higher risk of loss of income due to a weather event. A lender must confirm that flood insurance is available to the site. In addition, verify that the master insurance policy includes business interruption coverage.

Within the state of Florida, our business clients are challenged by the constant turnover in insurance providers and rising insurance costs. A lender needs to understand what impacts there maybe be to a property’s cash flow if CCB had to place forced placed insurance on the loan.
 

Confirm that your site has the appropriate zoning and future land use designation for the intended use. In addition, review the local permitting reports to determine if any new MHP’s have been permitted to be built within your property’s defined market area which is typically a 3-5 mile radius. 

A lender should review CoStar or Wikipedia to determine within the submarket, statistics showing the age distribution, income levels, ratio of homeownership to renters, population growth trends, and home values.  

A lender should evaluate the current and forecasted market conditions that have the greatest impact on MHP performance. The key economic factors that are especially important include:

• Growth in the population of those fifty-five or older
• Changes in per capital disposable income
• Changes in the unemployment rate
• Annual changes in the demographics related to mobile home occupant’s including age and annual income levels. 
• The number of sales and shipments of Mobile Home’s reported by the larger Mobile Home Manufacturer’s. (For example: Clayton Homes, Champion Homes, Fleetwood Homes, and Palm Harbor Homes)
• Financial trends related to the top mobile home manufacturers
• Federal, state, and county regulations regarding MHP development
• The cost of site built single family home versus the cost of a mobile home. Per the MHI August 2022 Industry Overview, the average national cost (excluding land) to build a stick-built home was $365,904. The average cost of a new mobile home was $108,100. 

Per the MHI, the occupancy in MHP’s in the U.S. in June of 2022 was 94%. For those communities that are age restricted (55 years or older) the occupancy was 97%.

Rental Rate Trends nationally for mobile home lot rentals per Cushman Wakefield have been provided below. The average rental rate in 2022 for lot rent was $596. The rental rates in age restricted communities are higher than rents in all aged communities. Please note that these are national averages. The lot rents within the Southeast are typically lower so a lender should survey your market and review both the appraisal and rent roll when projecting the rental rate when performing your cash flow projection. 

If professionally managed, review the terms and conditions of the Management Agreement and integrate the related expenses in your cash flow projections.  

Research the management company to gauge their reputation and read online reviews from tenants. 

The quality of the management company or onsite manager will quickly be evident in a mobile home community based on the condition of the park, the quality of the mobile homes, and the financial operating performance.  The ability to effectively manage the rental rates, occupancy, and the employment of sound property maintenance practices are critical to sustaining cash flow performance during the life of the loan.

If new construction, obtain a feasibility study to:

• Assess the competition 
• Validate your borrower’s forecast for costs, rents, occupancy, operating expenses, and net operating income 
• Determine the stabilization period

Access the following website https://www.mhvillage.com/parks. The website allows you to look up mobile parks located within the U.S. by location or name. Photos are provided along with addresses and a description of the amenities. Contact the direct competitors, access their website, and visit their park to evaluate the overall condition of the community and for confirming the borrower’s rental rate projections. 

Review the trends related to the industry from websites such as the Manufactured Housing Institute, Ibis World, MH Village to document in your credit memo the current trends and forecasts for the Mobile Home Park Industry and the Manufactured Housing Industry. 

When reviewing the operating statement and tax returns, note any income or expenses associated with mobile home rentals which will be excluded from consideration for underwriting purposes.

In reviewing the rent roll, the lender wants to confirm that the lease terms are a minimum of 12 months, otherwise, month to month leases are considered a vacancy when underwriting the credit. An acceptable rent roll should include:

• Tenant’s name
• Lot number
• Date of tenancy
• Maturity date
• Rental rate 

Confirm that the rental rate by lot type (size) is comparable throughout the rent roll. Outliers most often indicate 1) deficiencies associated with the lot or 2) management discounting rents for services provided by the tenant.

A lender must pay particular attention to the date of tenancy on a rent roll when financing an MHP. Because of the high costs associated with moving and setting up a mobile home, you would expect to see a longer-term tenancy throughout the rent roll. If you don’t, then a lender will want to understand the reason for the higher turnover or short-term tenancy.  There could be a reasonable explanation such as change in ownership or a recent park renovation. However, it could also mean incompetent ownership or management. Ideally, the Bank wants to minimize our credit risk by ensuring most of the leases have a period of 12 months or greater remaining until maturity. 

A lender is encouraged to review a standard rental agreement and make sure that there are no conditions included that could negatively impact the marketability of the property. 

Other income related to an MHP usually comes from administrative fees or late fees. Some luxury parks with a larger amenity package assess HOA dues or common area fees.

On an existing property, the borrower’s financial statements (annually) and tax returns for the last two years give a lender the most insight into the operating expenses associated with a stabilized Manufactured Home Community. For new construction, the Bank utilizes industry standards, the feasibility study, and the appraisal in estimating the operating expenses.

The OER is the total operating expense divided by EGI. In your, Quick Reference Guide for Non-Owner-Occupied Properties, note that the typical operating expense ratio for a MHP fall within a range from 45% to 50% of effective gross income. A newer property will likely scale toward the lower end of the range once stabilized and an older property, the higher end. The more amenities, the higher the ratio.
 

The lender is required to perform a cash flow analysis prior to presenting a MHP financing request to Preflight or Credit Administration for confirmation that the requested loan amount is supportable based on the Bank’s underwriting criteria. Templates for cash flow analysis are posted  in the Quick Reference Guide. Below is a detailed example of a cash flow analysis on a stabilized mobile home park.

• Assess the site contractor’s experience in building similar property types of the same scale
• Obtain an active contractor’s license
• Determine if the contractor is bondable
• Obtain financial information if required as a condition of the loan approval
• Review contractor’s website and request a resume of projects
• Collect and review GC’s liability insurance policy

From time to time the lender or Credit Administration will require the borrower to fund an interest reserve at closing. An interest reserve account is a credit enhancement considering the construction project is not income producing while under construction or in lease up.

Interest costs during construction will be funded from the Bank controlled interest reserve account as the interest comes due. Interest Reserves are non-interest-bearing accounts. Underwriting conditions that typically trigger an interest reserve requirement are: 

• Low liquidity levels of the borrower,
• An extended timeline for project completion,
• Project size or type, or
• Volatile conditions within the economy.