We have a MHP in the Midwest with 58 TOHs, all on month to month contract.
The City wants to buy the park from us, but they want the land only, they do not want the homes. They want us to remove the homes prior to the sale. We think this is highly risky, if they walk the deal our park value has been reduced to the land value only. We are reluctant to do this due to the obvious liability risks and headaches.
Our bank lender says the only way that the bank would agree to allow us to remove the homes prior to closing would be for the City to place the entire purchase price in cash in an Escrow Account with the bank. The bank would want to make certain that the Escrow Agreement is airtight and wouldn’t allow the City to “walk away” from the deal.
Most of the tenants are going to be very unhappy if they are ordered to remove their homes from the park. They would probably attempt to get the media involved, legal aid, etc. We’re not interested in any of that.
However, the city also has two other potential sites for their planned development and we don’t want to lose them as a buyer.
Does anyone have knowledge or experience with a situation like this? What would you do? Are there any companies that specialize in dealing with this, any referrals?
If I was in your position, the City’s offer would have to be an offer of a lifetime for me to move forward. And if it was, I’d negotiate with the City to have the tenants set up elsewhere - either by moving their homes (at the City’s expense) to other parks or by reaching out to other park owners to see if they would be willing to pay to relocate the tenants. I’m sure some homes can’t be moved because they’d fall apart - I’d ask the City to somehow pay for the tenant’s new home.
Can you share your numbers with us (NOI and City’s offering price)?
Interesting situation. I would definitely bring in an attorney experienced in real estate transactions to help negotiate and hammer out an agreement. I wouldn’t skimp either, you want someone who’s an expert for this.
Your concerns are extremely valid, and it’s a difficult subject to juggle with the bank. On the flip side though you can also see where the city is coming from - they don’t want to buy the park, and then have you reneg on an agreement and not remove the homes.
If a sale agreement is hammered out between the parties that involves a 7 figure fine for default, it’s far easier for you to collect on a fine from the city than vice versa.
@Noel_S is right about the attorney, but the structure I’d consider is that a fair amount stay in escrow for 3-6 months after closing as incentive for you to remove the homes post closing.
You get your money first, the city gets the homes removed or will have the funds to hire someone if you don’t perform. I think that’s a win win…if the price is right.
Yes, I am aware of that situation. Seller wanted to desperately sell his park because he was not running them well and they were deteriorating. He considered an offer by the city with similar terms. In that situation, the land is devalued with the homes present. Not only does the city have to remove the homes at considerable expense, but they first have to evict the tenants, and take legal possession of the homes. With 58 TOHs, this could easily cost $250,000 or more. Cities do not want the bad publicity so they ask you to do it.
Unless I am missing something, you are better off finding a buyer who wants the park as-is (e.g. as a cash-flowing park). You have 58 tenants, so it is possible that the cash flow value is more than the land value. Sell to a park buyer and your problem is solved.
If you do move forward with the city, be sure to have an iron-clad contract drafted by a good attorney.
I have not done this ,and I’d like to think I’d never do this because depending on who’s you ask. Even if they get relocated if you follow enough of these park closures, long term most people will get the short end of the stick, the relocation project may have merit.
But a park i previously owned had a strip bought by the city which was more for a right of way and they paid previous park owner X for the strip contingent on making it happen. So 10 homes more or less were taken from affordable housing. The project a decade later has yet to materialize. I think tenant notification in this circumstance was 180 days, maybe 1 year but those are lost forever. Financially for him it was probably worth it but realistically , back of the napkin calculation, he would have netted the same on when you take out demo costs on the park value. So it was short sighted in my opinion… maybe the project will still come to fruition but thats the one real life example i have seen.
I know of others with wal mart and such taking a piece of a park but maybe those were substantially higher value.
Andrew, are you willing to share a little more details on the offer price from the city, and how much they’re offering relative to the estimated market value of the property? (ex, 120%, 150%, 180%, etc). This is just out of curiosity.
In the City did the same thing. Told owners of homes they would get $10k or help them move their homes. Not a lot of places to move them to, and $10k not gonna be enough to move it & cannot buy a home at $350k! Big fight.
People got a lawyer & fought for 2 years, TV & media reached out to owners, City said the infrastructure was compromised & got around it that way, saying sewer upgrades etc too expensive blah blah. They wanted the land for BIG HOUSES.
Seniors ranting on TV so some got DOUBLE amounts to be quiet & last holdout finally was removed. Too much trouble.
the City did the same thing. Told owners of homes they would get $10k or help them move their homes. Not a lot of places to move them to, and $10k not gonna be enough to move it & cannot buy a home at $350k! Big fight.