During the “Finance Update: Mortgages, Chattel Financing, Rates, and More” panel at IMN’s Manufactured Housing Forum in Nashville, Tennessee, panelists discussed a variety of strategies borrowers could consider to advance their fiscal plans. From working with specialty insurers to using enhanced building standards, there were several key takeaways that could prove helpful in the months ahead.
Work with a Debt Provider Offering Diverse Financing Options
For owners of manufactured housing communities (MHCs), Fannie Mae and Freddie Mac continue to be a fitting option for stabilized assets. Beyond the agencies, some lenders report that a significant portion of their transactions now include commercial mortgage-backed securities (CMBS)—which can offer competitive terms in the current market, especially for deals where proceeds are constrained via traditional capital sources.
Fannie Mae and Freddie Mac prefer properties with high levels of resident-owned homes. Panelists noted that financing options expand significantly when owner-occupied homes make up at least 75% of a community. Operators should thus strive to reduce park-owned homes as much as possible. Doing so will not only expand access to more favorable financing options, but it will also reduce operators’ overall insurance burdens, as fewer park-owned units typically reduce insurance liability.
Meanwhile, to bypass elevated rates, more MHC operators are turning to all-cash acquisitions when embarking on value-add projects. As for developers pursuing construction financing in today’s market, cultivating strong relationships with local and regional banks (which are generally attuned to the demands of MHCs) is vital, panelists advised. The general takeaway is that it’s best to work with a debt provider who is attuned to the full spectrum of capital solutions when evaluating any transaction.
Prepare for Higher Premiums and Specialty Insurers
High insurance premiums are the “new reality.” For MHC owners who may need to increase insurance coverage on specific assets, proactive coordination among all stakeholders can prevent last-minute problems. As part of these efforts, strategies such as higher deductibles and/or re-evaluating excess coverage are worth exploring.
Another strategy discussed is to avoid over-insuring low-value structures. For example, lenders may try to include coverage on older homes or outbuildings that contribute minimally to the property’s value. Adjusting these items can keep premiums more manageable, while still satisfying lenders’ requirements. State-backed insurance programs (such as FAIR Plans) are worth investigating as well. As the MHC insurance market tightens, higher premiums may also force some owners to consider reducing coverage on certain assets to better manage costs.
In the Gulf Coast and areas prone to wildfires, many MHC owners require specialized insurance. But getting it, panelists explained, has become much tougher in recent years. That’s because many major carriers have withdrawn from the MHC sector, leaving only a limited number of specialty providers. Those that remain can be increasingly selective.
For instance, specialty insurers often require highly specific data about properties that, if omitted, can delay approvals. Disputes between insurers and lenders that can threaten an entire transaction also tend to arise when property appraisals include minor structures (such as old sheds) that add only minimal value. Such structures, panelists recommended, should be excluded from coverage valuations when possible and practical.
Invest in Better Buildings When Possible
Improved construction standards have helped reduce wind damage in regions recently battered by hurricanes. As new manufactured homes become more durable, operators should invest in enhanced building standards wherever possible—over time, the resulting insurance savings will usually more than offset the initial outlay.
For instance, elevating homes in flood-prone areas can dramatically reduce future insurance claims and premium costs. In Texas, panelists noted, raising homes just a few feet above ground in flood-prone areas dramatically reduced flood-related claims. “Fortified” home laws in certain Southern states can also provide insurance discounts for homes that meet certain standards.
Communicate Frequently with Lenders and Insurers
MHC operators should communicate frequently with both financing and insurance teams throughout the course of a deal, panelists urged. If, for example, a lender’s appraisal office requests coverage adjustments, those details should be shared with the insurance provider immediately to avoid potential coverage gaps—or costly last-minute policy adjustments. Such coordination not only mitigates risk, but also strengthens the borrower’s position by ensuring that all parties are aligned on coverage requirements.
Working with insurers who specialize in MHCs from the outset can also help anticipate potential coverage challenges and set expectations with lenders. For instance, certain localities require specific coverage levels that banks may not expect. By discovering and communicating these requirements early in the process, operators can increase the likelihood of a smooth closing.
Looking Forward
The insights shared at IMN’s Manufactured Housing Forum highlight the importance of adaptability and proactive planning in today’s evolving market. From diversifying financing strategies to navigating insurance challenges, MHC owners have a variety of tools to strengthen their portfolios and achieve long-term success.
If you have any questions about financing options or how to position your next deal for success, we’re here to help. Connect with me to discuss tailored solutions for your manufactured housing community needs.