What does Industry Regulation Look Like?


#1

Industry regulation is happening and it would be nice if all of us took up leadership roles to ensure that what is necessary to run our businesses is considered in the regulation. It would be wonderful to see this community engage with a topic like this. State governments will continue to do this as we’ve seen in both DE and IL.

For tenants, it’s obvious that caps on rent hikes need to be put in place. I’m not going to pretend to be innocent here and these rapid increases are the very definition of what’s wrong with landlords. In addition, the timing of rent increases need to allow enough time for our tenants to make arrangements. Mobile Home Parks are not apartments. Tenants are not able to easily pick up and move so consideration should be extended for that.

Aside from that, there needs to be a balance from a regulatory standpoint to ensure that regulations cannot be viewed as a taking. If an owner has kept their rents low, there should be a mechanism by which to catch those rents up to market rates (HUD should track this). What the media has chosen to ignore is the fact that nearly all of these sensationalized stories are about owners doing that. Bringing the rents up the rent levels of the comparable parks in the local market.

The days of this industry being a wild west are thankfully over. As an owner, you can either participate in moving the industry forward or you can let regulation happen to you. It would be nice to have a balanced discussion here and start moving toward real solutions with our state associations before the government puts them in place for us.


#2

Footnote: As of December 2, 2018; I’m no longer affiliated with Sunrise Capital Investors. Our group will release a letter about that soon that will explain why. I’m one man, on my own saying these things. I actively manage 0 parks and I currently have 0 presence in the industry now and you’ll soon learn all of the “embarrassing” truths about what it combat stress really looks like when someone comes home from a decade of combat. Despite what you may think, Brian and Kevin have been wonderful through that process and I’ll tell that story in short order. For now, maybe some of you will engage in the much more important discussion regarding management ethics.


#3

@CharlesD Charles - slightly off topic, but since you mentioned it - thank you for your service to our country. There are so many military, police, fireman, etc who do so much for us. Thank you.


#4

@CharlesD

Thank you…Thank you…Thank you…Thank you for your service in the United States Military!!!

Our family thanks you for your Military Service!!!

We wish you the very best!!!


#5

100% agree with Charles here. Cavalier equity will probably destroy this industry. IMHO, investors should focus on achieving the double bottom line: providing quality affordable housing to a growing population that desperately needs it while also delivering consistent returns to investors.

Value-add should be about adding amenities, filling vacant sites, improving the tenant base, enforcing the rules & regulations, repairing shitty roads, upgrading 50-year old utilities, removing abandoned homes and INCREMENTALLY increasing rents to reflect the current market conditions.

My conscious tells me that these folks deserve a fighting chance to adapt to this new market reality though. Wouldn’t kill PE to budget for a relocation allowance or a guarantee to buy a resident’s home at fair market value. Barring that, you all reap what you sow. California and New York have lead the destructive way. Other “progressive” MSAs are sure to follow.

Remember, there are two shareholders in this whole enterprise, your investors and your customers (aka the residents).


#6

And I’ll just leave this for you all:

“Of course it’s harder. The net result is people are gonna get worst results.”


#7

Jmazur and Charles
Thank you both for your posts. I agree with both of you completely. I firmly believe that running a business and providing good affordable housing should not and are not mutually exclusive.
There are so many nuances and misconceptions to this industry that it is a challenge to find common ground with the masses and the media.
But if most owners/managers took your words to heart, it would help our industry make great strides in being a wonderful product, one which greatly helps our affordable housing needs.
I always think about Spike Lee’s movie “Do the Right Thing” when it comes to business and life in general.
Thank you both!


#8

Howard and Jmazur,

Ethically, these large increases are wrong. Not so much with the intention of getting the property rents to market but because in many cases, the tenants have no ability to make a choice. There is very little time built in when you follow the letter of most state laws.

Many lawmakers fail to see that rent control doesn’t work. In their eyes, they can point to this as proof it works because they’ll stop the large increases with rent control. True but, what these morons fail to realize is that with rent control, the state has now positioned itself to “take” from the mom and pop real estate investors who kept rent low intentionally.

The government shouldn’t be discouraging people from running their business below market through removing the opportunity to receive a market rate sale in the future! Instead, it should probably encourage it (or at least preserve it) by putting limits on how quickly these rent increases can be instituted and allow all residents a fair and reasonable amount of time to choose a new place to live if they are not interested in paying a fair market rate. This allows the below-market rents to continue without the risk of loss in future property value for the current mom and pop owners still left in the business.

Additionally, I think rents should be tracked by HUD by requiring the park to report its rent each year and publicly make those rents available online for all to see. We tracked it at Sunrise in about 50 markets with just me calling the parks on a once-per-year basis. Most county code and zoning departments also track it which may shed light on a possible hierarchy of reporting to HUD.

Lastly, these first rights of refusal laws are silly too. Every owner I know would entertain a market offer from ROC if ROC were to make one.

That’s my opinion at least. I think the key levers are publicly tracking lot rents and building in time for residents to say no to the new owner within the bounds of the law. That’s a lot fairer and more balanced than taking away the incentives for Mom’s and Pop’s to be Mom’s and Pop’s. The State loves to strong arm the market though so we’ll see I guess…


#9

DE has a CPI + 1.5% rent control from what I’ve heard.

Maybe we set that as the threshold on a rent increase before an owner has to give a 12 month notice as opposed to the state minimum? I could live with that as an owner and I’d be willing to bet most residents could live with that too.

No more taking and no more captive audience. I’m probably missing something though so hopefully this thread continues with more participation.


#10

I came across an article a while back. I tried to quick search but can find it. I think it was ELS bought a resident owned community. Then as part of the deal they were reinvesting how ever many millions into the park. Then they agreed to limit rent raises to a certain amount . I feel like I’ve seen that happen more than once where a rent raise was limited , not my regulation but as part of the deal getting done.