2009 Spring Mhc Newsletter

PGP MANUFACTURED HOME COMMUNITY REPORT SPRING 2009 Understanding MHC Values is Our Business! States in which we have recently appraised

About PGP Valuation Inc…

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PGP Valuation Inc was established in 1978 and is now one of the largest and most successful appraisal firms in the world, with approximately 30 members of the Appraisal Institute (MAI) and 150 professional appraisers on staff in the United States and Canada. In November 2006, FirstService Corporation acquired a controlling interest in PGP. FirstService is the parent company of Colliers International (CMN), one of the largest and most respected real estate services companies in the world. FirstService also acquired a controlling interest in MHCM Project Management, Cohen Financial, and PKF Consulting. The result of this alliance is a powerhouse of comprehensive client services, including appraisal and consulting, commercial brokerage and management, and lending.

Our Role With the FDIC… PGP Valuation is the contracted Quality Control and Consulting firm for all real estate related issues for the FDIC. Our Scope of Work is to provide, monitor, and assist the FDIC in the following areas: • • • • •

Appraisal Reviews Establish/Monitor Quality Control Process Appraisal Ordering Monitor the REO and Loan Process Coordinate and Interact with Asset Managers and PCAM (P ost closing Asset Managers) to Establish QC Protocols

This involves the REO properties (non-performing and bank owned assets) non REO (performing or troubled assets) under FDIC receivership.

MHC Market at a Glance…

Alabama Alaska Arizona Arkansas California Colorado Connecticut Florida Georgia Hawaii Idaho Illinois

Will rents be able to hold their ground, and can occupancies increase while our nation seeks quality affordable housing? Many community owners indicate challenges in refinancing communities, and financing homes. The elimination of the CMBS market has effectively removed much of the needed liquidity that the industry runs on. Have the market ills had an impact on value? Is it possible that MHC is a great hedge against a declining market, and therefore values can be expected to increase? Or will MHC values suffer losses similar to other residential and commercial real estate? We at PGP look forward to talking with you regarding these and other issues facing the industry.

INSIDE THIS ISSUE

Unemployment has reached a level not seen since the early 1980s, and the credit crunch has put a pinch on residential and commercial real estate. With all the bad news in the market, what is the impact on Manufactured Housing? As one of the best affordable housing options, will this sector benefit from the collapse in the housing bubble? Spring 2009 Newsletter

Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana N Carolina NewHampshire New Mexico New Jersey New York Nevada N Dakota Ohio Oklahoma

Understanding Operating Expenses

(Bruce Nell, National Practice Group Leader, PGP Valuation Inc.)

A lot has changed in the past 12 months. A new president and a shift in the policies of Washington. The S&P fell 40% and then rebounded 25% in the last month. The Phillies win a world series; although the curse of the Billy Goat lives on in Chicago.

Indiana Kansas

Conversation on Capitalization Rates and National Sample of Recent Sales

Oregon Pennsylvania N Carolina S Carolina

What Do Those Involved in the Market Think of What is Going On

Tennessee Texas Utah

Boost Your Value! Ideas to Increase the Value of Your Property MH REITs Perform Best in 1Q 2009 Meet Our Team For more information, contact the PGP Valuation MHC Team (see the back of the newsletter for contact information).

COPYRIGHT © 2009 PGP V ALUATION INC ALL RIGHTS RESERVED

Virginia W Virginia Washington Washington, D.C. *Puerto Rico

UNDERSTANDING OPERATING EXPENSES Accurate valuation is enhanced by solid operating history. However, it is common to rely upon expense comparable data when valuing properties through direct capitalization. Understanding how operating expenses vary from region-to-region is key, especially for spec ialized lenders and investors looking to expand into other national markets. The table to the right is a sampling of approximately 100 expense comparables located throughout the country. Possible considerations for comparing operating expenses are discussed below.

Off-Site Management: This is typically done on a percentage basis (EGI). Therefore, areas with higher rents result in higher management costs. Typical costs range from 3% to 5% of Effective Gross Income. This expense is not to be confused with General/Administrative expenses. On-Site Management: This category is greatly impacted by location and average living expenses. It is common for resident managers to live on-site. Expenses are often higher for facilities not offering living accommodations for managers. It is typical for owners to offer one free space for managers of communities from 20 to 150 spaces and two free spaces for communities

Off -sit eM gm t. On -sit eM gm t. Ge ner al/A dm in.

Ma int.

Uti litie s

Re pai rs &

Repairs and Maintenance : This category includes landscaping and any maintenance associated with the facility. Areas that require a snow removal expense are typically higher. Long term expenditures are also affected by climate; however, these expenses are typically covered in the reserves category. It should also be noted that expenses for this category can range greatly depending on the number of amenities such as clubhouses, pools, and playgrounds. This expense is also impacted by whether or not the community has a well and/or septic system which requires regular maintenance. The typical range for this category is $150 to $350/space. Age and physical characteristics also play a part in budgeting for this category.

Ins ura nce

Utilities: Both location and climate play a role in this category. Densely populated areas typically see higher energy costs. Utility expenses can range greatly from property to property depending on the utilities that are directly billed to the residents. Additionally, many owners recapture the utility expenses by passing through the costs to the residents.

$1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0

RE Tax es

Insurance: Rates are fairly similar across the nation. Special consideration should be given to flood, earthquake, hurricane, or other natural disaster areas. Typical range for this category is $75 to $125/space. It is typical for lower rates to be achieved through blanket policies. It will be interesting to see if or how much policies rise over the next couple years due to a variety of factors.

Operating Expenses

$ Per Space

Real Estate Taxes: Every state has its own method for calculating property taxes. There are several states (like Michigan and California) that reassess facilities based on sales price. Therefore, since the definition of “Market Value” assumes a sale, appraisers are forced to use an amount calculating the value of the property and the tax rate. Each local jurisdiction must be reviewed and understood. This can oftentimes cause headaches for refinances .

PGP Valuation Inc with more than 150 spaces. Typical range for this category is $300 to $400/space. General/Administrative: This category is fairly comparable from region-toregion. This expense includes accounting, legal fees, other professional fees, and general administrative costs. Typical range for this category is $100 to $200/space. Reserves: This category takes into consideration capital improvements over a holding period. For manufactured home communities, it would typically include replacing the roofs on clubhouse, resurfacing the streets, and updating/replacing utility pedestals. Typical range for this category is $30 to $60/space. (Data compiled by PGP Valuation Inc MHC specialist Kevin Evers- 916.724.5530)

MHC CAPITALIZATION RATES There were fewer sales in 2008 than seen in previous years. The reduced number of sales owes in some degree to the lack of credit available and the particular aversion to risk on behalf of lenders as well as investors in the current market. The uncertainty surrounding the ultimate fallout from the downturn in the national economy has led to a pullback from both lenders and investors. While buyers view the market with some skepticism and expect an increase in rates, sellers have remained optimistic or are unwilling to believe that capitalization rates may have risen from historic lows of the mid-2000s when many properties traded in the 5.0% to 6.0% range. These rates were driven down by equally historically low interest rates spurned by the Federal Reserve Bank’s lowering of the Fed Rate to help jumpstart the economy after the 9/11 terrorist attacks and earlier downturn in the dot.com market. While the lower rates did promote more debt by consumers and made housing more affordable, the subsequent housing boom was not built on solid economic drivers (job gains, increase in exports, etc.) and the run-up in housing prices was not supported. The hastily prepared, adjustable rate loans were bundled together and sold on Wall Street, incorrectly rated and sold to uninformed investors. The US economy, that was held up primarily by the housing market (mortgage companies, lenders, developers, home-builders, contractors, etc. all experienced substantial growth over this period) became very unstable when supply exceeded demand and home prices began to fall. Concurrently, the adjustable rate loans began to see large rate increases that the unqualified buyers were unable to keep pace with. As housing prices declined, borrowers were unable to refinance their loans resulting in defaults. The loans sold on Wall Street were spiraling in value and almost overnight, investors in the large conduit loans stopped buying the paper. Lenders that were not prepared to carry and service the massive amounts of residential and commercial paper were now burdened with loans that had no buyers at rates that were too low to sustain. The mounting loans that were going into default coupled with the growing uncertainty surrounding the economic outlook and cras hes in the global economy caused many banks to stop lending altogether. In late 2008, the Federal Government again interceded to create TARP, a $700 billion dollar bail-out for many of these lenders that had created the market instability, fearing that these companies collapse would spark further economic decline through job losses, lower retail sales and a further decline in housing prices. The government’s primary concern was the lending environment had seized up after Wall Street stopped buying paper. The uncertainty on the part of lenders continues today with some lenders quoting 600 to 2,000 basis points over the historically low Treasury rates for new loans, with only the most qualified buyers and the safest of loans being written. At the same time, loan to value ratios decreased from 90% to 100% down to 50% to 60%.

Spring 2009 Newsletter

COPYRIGHT © 2009 PGP V ALUATION INC

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MHC CAPITALIZATION RATES (CONT.) As a result, only well capitalized buyers even qualify for a loan in the current environment. While sellers have been reticent to sell, since few buyers are even less credit are available for deals priced below 7.0%, qualified buyers have realized that they now control the market and many also fear the uncertainty surrounding pricing. Investors have reported equity return requirements near 12% with limited risk to venture from the sidelines. Consequently, a stalemate between buyers and sellers has taken hold of the commercial real estate market. The standoff will likely continue until sellers, some that have already lost up to 20% in book value on their investments, need to either refinance their existing loans or cannot afford the new payments as rates adjust upwards and, in either event, are forced to sell. In a published article by Royce Rowles of PGP Valuation Inc, Royce discusses the ratio between annual net income and sales prices. “While the NOI may be falling at many properties (due to increased vacancy rates and/or more competitive rental rates), it almost certainly does not account for the entire value decline in this market. Major value declines also come from the changing status quo between buyers and sellers. Buyers have become much more patient and are expecting a much more favorable ratio between their NOI and purchase price. In other words, when there are fewer buyers (as often is the case in a down market) capitalization rates move upward. In situations where there are recent comparable sales, anyone valuing a property can easily extract and apply very current and realistic capitalization rates to estimate Market Value. This is because during times of appreciation, the market is usually active. Extracting supportable capitalization rates is easy. However, when transactions are scarce finding market capitalization rates can be significantly harder. When this happens, oftentimes sellers have an unrealistic opinion of value because they are relying on dated capitalization rate sources.” The following is a sample of recent manufactured home community sales collected from across the United States by PGP Valuation.

NATIONAL SAMPLE OF RECENT MHC SALES Property Name

Location

Sale Date

Sale Price

Number of Spaces

Price per Space

Year Built

Occupancy

Cap Rate

Pleasant Living MHC

Riverview, FL

2/10/2009

$10,400,000

245

$42,449

1976

N/A

5.83%

Greenfield Manor

Fenton, MO

1/25/2009

$3,350,000

153

$21,895

1970s

94%

8.21%

Oak Haven MH Park

Arlington, TX

12/23/2008

$2,500,000

93

$26,882

1971

82%

9.00%

Safari MHP

Avery, CA

12/3/2008

$1,250,000

72

$17,361

1968/1998

N/A

6.60%

The Willows & Willows II

Fenton, MO

11/15/2008

$3,160,000

121

$26,116

1984

85%

8.19%

Twin View Terrace MHP

Redding, CA

11/14/2008

$6,300,000

178

$35,393

1965

90%

6.30%

Harper Park MHC

Le Roy, NY

11/13/2008

$650,000

44

$14,773

1978

82%

9.20%

Coral Isle MHP

Hesperia, CA

10/31/2008

$3,350,000

70

$47,857

1966

100%

6.48%

Twin Cypress MHP

Oakdale, CA

10/31/2008

$2,100,000

45

$46,667

1968

100%

7.26%

Emerald Acres MHP

Colorado Springs, CO

10/21/2008

$5,850,000

114

$51,316

1970s

96%

7.01%

Mt. View Villa Mobile Home Park

Mountlake Terrace, WA

10/16/2008

$1,880,280

30

$62,676

1969

100%

5.52%

Western Village

West Des Moines, IA

10/15/2008

$6,750,000

270

$25,000

1970

95%

7.48%

Hanford del Arroyo MHP

Hanford, CA

10/10/2008

$11,060,100

173

$63,931

1978

99%

6.06%

Terrisan Reste MHC Nomad Country Club Mobile Estates Sierra View MHP

Bridgeton, MO Vancouver, WA

10/10/2008 10/1/2008

$3,825,000 $2,400,000

120 51

$31,875 $47,059

1960s 1960s

98% 100%

7.95% 6.05%

Porterville, CA

9/30/2008

$760,000

33

$23,030

1965

100%

9.72%

Eastwood Manor MHP

Mankato, MN

9/20/2008

$4,950,000

267

$18,539

1966

94%

8.54%

College Street Mobile Home Park

Olympia, WA

9/8/2008

$1,700,000

20

$85,000

1999

N/A

4.13%

Lakeside Village

Highland Mills, NY

9/1/2008

$4,500,000

89

$50,562

1960

87%

7.53%

Skylark MHC

Lafayette, CO

8/26/2008

$4,270,000

96

$44,479

1970s

94%

7.86%

Acacia Villa MHP

Apache Junction, AZ

8/12/2008

$2,570,000

66

$38,939

1988

77%

6.08%

Antelope MHP

Gillette, WY

8/8/2008

$3,620,000

121

$29,917

1970

99%

7.66%

White Oaks Mobile Home Community Canoga Mobile Estates

New Caney, TX

8/1/2008

$2,075,000

168

$12,351

1970

51%

5.70%

Canoga Park, CA

7/30/2008

$21,800,000

200

$109,000

1971

100%

5.75%

Pioneer Pines MHP

Bakersfield, CA

7/29/2008

$10,400,000

336

$30,952

1970

63%

6.68%

Skyview Terrace MHP

Foresthill, CA

7/29/2008

$6,910,000

135

$51,185

1960s/1975/1987

98%

6.17%

Rockford Riverview Estates

Rockford, MN

7/28/2008

$12,350,000

429

$28,788

1973

88%

5.50%

Windy Hill Estates

Williamsburg, VA

7/24/2008

$8,000,000

215

$37,209

1958

94%

7.10%

Woodland Terrace

Waterloo, IA

7/21/2008

$3,575,000

368

$9,715

1968

77%

7.52%

Verde Plaza MHC

Tucson, AZ

7/18/2008

$5,800,000

193

$30,052

1974

76%

6.26%

Bonner Springs MHC

Bonner Springs, KS

7/3/2008

$4,917,029

211

$23,303

1972

75%

7.02%

Creekside Estates MHC

Kansas City, KS

7/3/2008

$3,215,877

143

$22,489

1975

78%

7.14%

Countryside MHP

Cotati, CA

7/2/2008

$1,850,000

36

$51,389

1960s

N/A

5.95%

LeBruns MHP

Lebanon, NH

6/30/2008

$1,625,000

50

$32,500

1968

100%

8.66%

Puerto Vista MHC

Coos Bay, OR

6/26/2008

$5,100,000

135

$37,778

1979

99%

6.30%

El Dorado MHP

El Cajon, CA

6/26/2008

$3,175,000

51

$62,255

1970s

97%

8.03%

Holly Ridge Mobile Home Park

Conroe, TX

6/25/2008

$1,176,650

58

$20,287

1960

95%

7.52%

Ward Mobile Home Park

Sylmar, CA

6/20/2008

$1,730,000

40

$43,250

1947

95%

7.02%

Kakusha MHC

Clearwater, FL

6/5/2008

$4,400,000

116

$37,931

1970

100%

6.11%

Wellington Green Estates

Clarksville, IN

6/1/2008

$9,300,000

319

$29,154

1968

97%

7.23%

PGP Valuation Inc has compiled capitalization rate trends for manufactured home communities over the past ten years and broken them down into five different regions. If you are interested in capitalization rate trends in your region contact a PGP Valuation representative.

Spring 2009 Newsletter

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LET’S FIND OUT WHAT THE MARKET THINKS How have the Capital markets affected lending for the manufactured home community industry? The significant turmoil in the real estate capital markets has resulted in a considerable vacuum in financing opportunities for Manufactured Home Communities. Once a favorite of the now inactive CMBS/Conduit loan industry, the MHC asset class has become increasingly reliant on Fannie Mae, life insurance company, and commercial bank loan executions. Many MHC and RV Resort operators, in addition to borrowers across every asset class, had found favor in recent years with aggressive Conduit lending programs and their high loan-to-value and low debt service coverage thresholds. With the disappearance of this segment of the capital marketplace, the availability of competitively priced, non-recourse first lien financing for MHC’s outside of Fannie Mae does exist, however with comparatively less attractive terms. Portfolio life insurance companies are still in the market and are providing non-recourse financing, however their fixed rates range from 7% to 8%, which is 1.5% to 2.0% higher than Fannie Mae fixed rates today. Commercial banks will loan up to 75% loan-to-value on MHC’s, subject to debt coverage requirements of 1.25x typically. The best bank pricing today is in the low to mid 6% range, and the borrower must sign a personal guarantee. The bright spot for MHC financing continues to be Fannie Mae, but they too are getting tighter in their underwriting and pricing. The highlight of Fannie Mae’s offerings today includes a variable rate loan program with fully indexed rates in the high 4% range and a lifetime cap between 6.75% and 7.25%. Zachary E. Koucos Associate Director HFF 858.812.2351 Office 858.552.7695 Fax Securitized lending for individual properties (CMBS or conduit loans) emerged in the mid-1990s as a very popular lending option for commercial real estate including MHCs. Conduit lending was embraced by lenders as a way to generate lending profits while shifting the risk of defaults to bondholders who purchased the bonds that were collateralized by the individual loans. In some years conduit lending accounted for up to 60 percent of annual commercial lending volume. Borrowers benefited by having very attractive (interest rates and leverage) non-recourse financing available for most properties including MHCs, which had previously been viewed by many lenders as a special purpose asset. The existence of conduits also resulted in better terms being available from non-conduit or traditional balance sheet lenders as they had to compete with conduits to obtain business. However, the recent capital market turmoil brought the origination of conduit loans to a halt as the buyers of these bonds, or CMBS, exited the market. With conduit lenders gone from the market, many MHC borrowers with existing conduit loans are facing challenges in refinancing their properties. Tony Petosa Senior Vice President Wells Fargo Multifamily Capital (760) 438-2153 Office (760) 505-9001 Cell (760) 438-8710 FAX [email protected] Spring 2009 Newsletter

To use a Vegas analogy, we went from a "hot" craps table where everybody is winning, to the desperation of placing your last dollar into the slot machine on the way out, hoping you'll get lucky. OK, maybe not that extreme, but close. Over the past several years, there were many options to finance your MHC; you had the CMBS/conduit lenders, the life companies, GE, commercial banks and the Fannie Mae DUS lenders, to name a few, and they all wanted a piece of the action. Due to MHCs being a proven asset class within the finance world (high performing loans and low delinquencies), they were viewed as favorably as a Class A apartment complex in a strong Southern California market. At the peak, it was common to see 10 years interest only, 80%+ leverage and a sub-100 spread on any given community. Then, much like the economy as a whole, the bottom fell out and we went from an extremely liquid and aggressive market to a cautious, selective, downright tough market. The good news is that we are still closing loans under the Fannie Mae DUS program. Although the terms are not quite as attractive, it is still possible, and realistic, to get a non-recourse, less than 6% fixed rate loan with a 10 year term and a 25 to 30 year amortization schedule at 75% leverage on high quality communities. Other than that, you may be able to find a local bank or a life company to consider something on a recourse basis and/or a more conservative structure. Todd Elkins Vice President Grandbridge Real Estate Capital LLC 205.978.1920 Office 205.978.1852 Fax [email protected] www.gbrecap.com With the capital market providers still on the sidelines , owners of manufactured home communities basically have two choices when it comes to financing – Fannie Mae and everything else. I divide it into two choices since Fannie Mae is the best option in the market today and Capmark is actively closing loans through its Fannie Mae platform. The main issue is having the community qualify for a Fannie Mae loan from the quality standpoint. The community generally has to be 3.5 star quality and higher, 50% of the spaces have to accommodate multi-sectional homes, very little park owned homes, 5% or less RV sites, good amenity package and has to show well. Current underwriting guidelines are 80% LTV with a 1.25x debt coverage ratio with terms ranging from 5 to 30 years. Amortization schedule of 25 to 30 years. Keep in mind that Fannie Mae has been tightening their underwriting requirements, so a deal that fit the program a year ago may not qualify today. If the community doesn’t qualify for Fannie Mae, then it falls into what I call “everything else”, meaning Capmark works with the borrower to try and find a loan. There are several smaller banks that will lend on manufactured home communities throughout the country. The underwriting is going to be more conservative than Fannie Mae, generally LTV of 60 – 70% with 1.30 + debt coverage ratio. The terms are going to be shorter as is the amortization. Capmark also works with life insurance companies to fund loans for manufactured home communities. Some insurance companies will lend on communities that don’t qualify for Fannie Mae program ; it really comes down to deal specifics.

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4

LET’S FIND OUT WHAT THE MARKET THINKS (CONT.)

As a community owner who needs financing in this challenging environment, it is important to allow more time to get your loan closed and it is very important to work with lenders that know what they are doing. Damon B. Reed Vice President Capmark Finance Inc. (205) 991-6700, Ext 8191 (205) 991-9101 Fax (205) 601-2855 Cell [email protected] Underwriting parameters continue to become more conservative. Fannie Mae recently announced that all-age communities (non-age restricted) will need to utilize a 25 year amortization, as opposed to the standard 30-year amortization. Fannie is taking a harder look at asset quality and only wants to lend on the highest quality communities. That being said, Fannie Mae closed on over $1 billion in manufactured housing business in 2008, which was a huge jump from the previous year. Rates are still very attractive for communities that do qualify, with 10-year loans currently pricing in the 5.75-6.25% range. With limited other financing options, we expect to continue to see a large volume of manufactured housing owners seeking Fannie Mae financing in 2009 for their communities. Andrew Tapley Senior Vice President Multifamily Finance Phone: (301) 215-5578 Fax: (301) 634-2151 [email protected] www.walkerdunlop.com

In the next 12 to 24 months do you foresee any new financing sources or options that are not currently available for MHC owners? I have been lending on manufactured home communities since 1995 and it’s hard for me to imagine that the capital market providers will stay on the sidelines forever. I think we are several months away before any of the Wall Street firms dip their toe in the securitization market. I do think by 2010, we will see some “conduit’ lending for manufactured home communities, albeit on much more conservative terms that what was done in 2007. Manufactured home communities as an asset class are holding up well compared to other commercial property types. If that trend continues, you may have more life insurance companies and even pension funds start to lend on communities. Overall, I am optimistic that the worse days are behind us and that we may start to see “normal” lending emerge in the near future. Damon B. Reed Vice President Capmark Finance Inc. (205) 991-6700, Ext 8191 (205) 991-9101 Fax (205) 601-2855 Cell [email protected] Spring 2009 Newsletter

Yes, we are seeing the marketplace gradually deepen for MHC financing as more lenders have taken note that Manufactured Home Communities as an asset class provide a reliable, low-risk investment. Life insurance companies as well as commercial and regional banks that historically have not transacted in the MHC sector are beginning to realize the inherent value of including this product type in their investment portfolios. The word is out – low loan delinquency ratios, high occupancy rates, and consistent cash flow make MHC’s one of the most attractive options for the deployment of capital in these uncertain times. We are also seeing many public and private capital sources raising debt and equity funds for the origination of first lien, mezzanine, bridge, and structured finance transactions. More and more of these capital sources have MHC’s on their list of preferred product types. The ability to navigate the capital landscape left standing after the implosion of the MBS/Conduit marketplace is crucial today for MHC operators who are finding that their go-to lenders are no longer active or existent. The good news is that there will be capital available and looking for opportunities, albeit with a tighter strike zone on underwriting, pricing, and terms. Zachary E. Koucos Associate Director HFF 858.812.2351 Office 858.552.7695 Fax [email protected] For the near future, we see Fannie Mae as the best financing source for MHCs. Fannie Mae offers long-term fixed rate, non-recourse financing to qualified MHC's (10-year fixed rates are currently under 6%), and this has helped fill the some of the void left by the conduit market. For properties that do not qualify for Fannie Mae financing, portfolio lending programs would be the next option. Borrowers will find, however, that portfolio lending programs often require full recourse (personal guarantees) and the terms and rates are not as attractive as what can be found with Fannie Mae currently. Beyond that, seller financing may be an option if a borrower is acquiring a property. In that instance, the financing terms will be the result of what the buyer is able to negotiate with the seller. Will conduit lending return? Ultimately we believe it will, but not for the foreseeable future and likely in a more regulated environment with tighter credit standards. Nick Bertino Vice President Wells Fargo Multifamily Capital (760) 438-2629 Office (858) 336-0782 Cell (760) 438-8710 FAX [email protected]

With the single-family market struggling, how do you think this will affect the manufactured home community industry? Simply put, the struggling single family market presents terrific challenges and great potential. The potential is to design creative and sustaining programs that enable companies like ours to provide

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LET’S FIND OUT WHAT THE MARKET THINKS (CONT.)

quality, affordable shelter to families who have challenging balance sheets and credit histories because they are moving from housing they can't afford to factory-built homes in community neighborhoods that present a lifestyle and a value proposition that they can embrace. The real challenge for our company is developing programs to take advantage of the baby-boomer population wanting to downsize, but not being able to sell and capture their perceived equity in the current home they have occupied for decades. James A. Reitzner President & Director Asset Development Group, Inc 414-507-8057 [email protected] In the near term, on the 55+ side, the inability of our prospects to sell their homes has been affecting us for a while now. New home sales in age restricted communities have dramatically slowed given the difficulties these prospective residents face in selling their permanent homes. When houses do start to sell, and there is evidence the inventory of foreclosures and short sales is starting to move in the Sunbelt states, we’re going to be competing with some relatively cheap stick-built product. I think this will force us to revisit the floor plans and models we’re spec’ing. For a while, when the market was hot, the homes we were selling kept getting bigger and more expensive (triples, two-car garages, granite and stainless steel, etc.). This worked because the cost of alternative housing was increasing so rapidly and our customers were pulling out large amounts of equity from their homes in the north. That is obviously not the case at this point and we are going to be selling in a much more “normal” market when the ship turns. The good news is, I think the housing correction has readjusted the market for the different types of housing. Many of those folks, and there are millions of them, that could previously have qualified for a high leverage mortgage to buy a stick built-house, are renters now. This has translated to fantastic sales results within our all-age portfolio in all regions of the country. As long as we remain focused on the overall value proposition this industry is based on, we expect this success to continue. William Glascott, CFA Vice President Hometown America, LLC 312.604.7503 Office 312.604.3103 Fax 312.523.7584 Cell [email protected] www.hometownamerica.com The manufactured home industry is able to offer individuals and families an alternative affordable housing option during an economic transition. Manufactured home communities offer an atmosphere and amenities that a typical apartment complex does not have. These include homes with a larger living area than a typical 2 bedroom apartment unit, individual yards in which pets and children can play safely, and a similar neighborhood atmosphere to that of a single-family subdivision. The RHP Properties portfolio (70 communities, 15 states) continues to experience an increase in occupancy due to our strong hands -on management approach during these tough economic times. Spring 2009 Newsletter

Joshua Mermell Director of Acquisitions RHP Properties, Inc. 248.626.0737 [email protected]

Many owners have indicated that one of the biggest challenges of owning MHCs is having to carry notes of community-owned homes on the balance sheet. With the lack of chattel/manufactured home financing, how are you dealing with home financing issues? As a company, we recognized years ago that we could not "get around" the necessity of financing homes in our communities. Our business model necessitates the three critical components of our asset class: retail sales of homes, retail financing of homes and quality communities in which to place those homes all for the purpose of creating the value proposition for the customer. We purchased a finance company with an on-going book of business and solid income stream, and expanded that company's ability to grow and service our buyers. This approach keeps our balance sheet on the properties side focused on the traditional method of valuing properties which is the Net Operating Income tied to the real estate and not blurred by the necessity to evaluate the "home inventory", however it is represented on the balance sheet. James A. Reitzner President & Director Asset Development Group, Inc 414-507-8057 [email protected] We’re doing it ourselves. You are correct though that this is a big challenge as the capital requirement associated with home sales has increased. It has worked out for us as we’ve been able to manage delinquencies and turnover because we’re in the communities every day. From a capital preservation standpoint, it has worked out as we’re well capitalized, long term investors with the critical mass that supplies geographic and demographic diversity in our loan portfolio. We do have good relationships with the national lenders that are still out there lending and work to establish partnerships with regional and local banks when possible. We are also always looking at creative ways to add liquidity to this market through industry initiatives and working with national organizations like the MHI. I think as investors come back to the market for asset backed securities (with help from Uncle Sam) and we as an industry can demonstrate transparent and stable loan performance, more chattel financing sources will surface. However, that means that we need to be very disciplined in our lending practices and underwriting so that we ensure these notes are marketable assets when that time does come. William Glascott, CFA Vice President Hometown America, LLC 312.604.7503 Office 312.604.3103 Fax 312.523.7584 Cell [email protected] www.hometownamerica.com

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BOOST YOUR VALUE Ideas to Increase Your Community’s Value 1) Tax Appeal – Do you feel you are paying too much in taxes? A viable option for some community owners in today’s market is a property tax appeal. With the help of PGP Valuation Incyou can take on the assessor’s office to bring the assessed value of community to where it should be, reducing taxes and increasing your net operating income. 2) Get an Insurance Quote – Are your insurance expenses in line with the market? Many times owners stick with the same insurance plan and company for their community for years and years. Don’t get stuck in a rut. Test the market and shop around to find the best insurance plan for your community. Doing so could save you big not only in NOI, but also give you the peace of mind that your community is adequately insured. 3) Pass Through Utility Expense s – Are utilities expenses eating away at your bottom line? By passing the through water, sewer, and trash expenses on to the residents owners help to protect themselves from overuse and abuse of the utilities by careless tenants. Passing through the utilities expenses to the residents can sometimes be a touchy subject, especially in areas where vacancy is high, so owners have been known to discount the space rent to help mitigate a portion of the increased costs to the residents.

4) Image is Everything – What first impression does your community give to potential residents? The best tenants will be looking for high-quality, attractive communities. Simple practices such as a fresh coat of paint, pressure washing common area exteriors, and picking up trash are all affordable ways that please those paying attention to detail. A few flowers and nice landscaping will also add greatly to your community’s curb appeal. 5) Put Your Best Face Forward – Who is the face of your community? Your choice of staff will be the face of your business. Managers who can give a good impression to potential tenants with charisma and attentiveness, as well as capture your vision of professional service, will attract and retain your tenants and encourage referrals. Capitalize on the great supply of talent swimming in the current job market. 6) Space Rental Income Is Not Everything – How much ancillary income does your community produce? The most successful owners in this industry have recognized that income is not limited to the monthly space rent. Additional income generators include RV/boat storage, pet rent, safe deposit boxes, and a host of other creative ideas. It is also important to look at miscellaneous income items which could include administration fees, late fees, and merchandise sales. (by PGP Valuation Inc MHC specialist Kevin Evers - 916.724.5530)

MANUFACTURED HOUSING REITS PERFORM BEST IN 1Q 2009 By Greg Sukenik, Senior REIT Analyst, Zacks & Co. th

st

Despite a slightly rally on April 6 , equity REITs posted a 32% decline in the 1 quarter (FTSE NAREIT Equity Index). In March, REITs we up about 4%. Shopping center and Industrial REITs were the worst performing sectors, each declining about 41% in the quarter. Manufactured Housing was the best performing sector, declining just 2%. Manufactured Housing is viewed as a more “recession proof” sector, which could benefit as people trade down to less expensive rentals. We expect continued volatility in REITs over the next couple of months due to commercial real estate fundamentals, which are falling in most property types. If you jump into the sector, make sure you are diversified and only buy companies that have enough liquidity to roll over 2009 debt. Going forward, our favorite sector in 2009 is Apartments and our least favorite is Office. Apartment owners will benefit due to a growing pool of potential renters and lower turnover. Office landlords are struggling due to the lack of corporate expansion; many companies are reluctant to take on new space until the economy improves. Office vacancies are increasing in most regions in the U.S. Among our buys are apartment REITs, Equity Residential (EQR) and Mid-America Apartments (MAA), two REITs with minimal 2009 debt maturities and attractive valuations.

Spring 2009 Newsletter

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MEET OUR TEAM

Who Do I Contact?

A core strength of PGP Valuation Inc has long been its belief in specialization. With teams of individual specialists devoted to every major asset class, PGP has redefined the valuation process. In particular, the Manufactured Home Community Team has become a model for the industry due to its sweeping market knowledge, intimate awareness of MHC trends, and efficiency.

Bruce Nell National Director (Eastern US) 614.540.2944

Rob Detling (Western US) 916.724.5507

PGP Valuation’s Manufactured Home Community Team has appraised facilities in nearly every U.S. state. Together with our Canadian team, we have complete coverage of the North American MHC asset class.

Additional Offices in:

Continual exposure to manufactured home communities is what sets the MHC Team apart from the typical, generalist appraiser. PGP Valuation Inc have developed a database of market transactions, operating expenses, and rental rates that is growing with each appraisal. The impact of this wealth of information ripples throughout the analysis and is not limited to just an improved comparable selection. In the experienced hands of the MHC Team, the database allows the appraiser to track historical trends to more accurately gauge how the manufactured home community industry is evolving. This equates to a report with a more insightful market analysis, accurate projection of net operating income, and a capitalization rate that reflects the state of the local market. As we look forward to 2009, it is clear that hiring an appraiser with the expertise required to perform a proper analysis is of paramount importance. In 2007 and 2008, clients of all different sizes trusted the MHC Team at PGP Valuation Inc with the valuation of approximately 400 facilities for a variety of purposes. Whether the value is to be used for acquisition/disposition, estate planning, property tax dispute, or litigation, utilizing an appraiser that is an expert in valuing manufactured home communities and who understands the industry is essential.

Atlanta, GA

Announcement…… Over the past decade only a few firms had appraisers who are considered experts in the valuation of manufactured home communities . Many of those experts are now together at one company , PGP VALUATION INC.

Boise, ID

Boston, MA

Chicago, IL

PGP Valuation Inc is pleased to announce the addition of Bruce Nell, Matt Bilger, James Scott and Chuck Schierbeck to their National Manufactured Home Community Valuation Group. Bruce Nell was a principal with Crown Appraisal Group and their Director for MHC Valuation. Together this team has worked on MHC projects in nearly every market in the US. This experience is added to the industry leading Manufactured Home Community Valuation Group at PGP. Together the team has appraised thousands of facilities across the United States and Canada

Dallas, TX

Denver, CO

Detroit, MI

Honolulu, HI

Los Angeles, CA

Phoenix, AZ

PGP Releases New Report Format: “Asset Management Report”

Portland, OR

PGP has created the Asset Management Report as a simple, cost effective format to help identify potentially weakening commercial real estate markets, properties at risk, and loans that need early management attention. The Asset Management Report is a regulatory compliant appraisal in a customized format that delivers critical information you need to limit management and review costs and maximize return on your loan portfolio. ASK US ABOUT IT!

Sacramento, CA

San Diego, CA

San Francisco, CA

Seattle, WA Pictured (left to right): James Scott, Chuck Schierbeck, Bruce Nell, Lisa Ventresca, Matt Bilger

Vancouver, WA

Spring 2009 Newsletter

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