Demand for Fee-Based Management is Growing

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Fee-based management for manufactured home communities
Image courtesy of Zeman Homes.

Our Insider Sources from Six Industry Leading Organizations

Bessire
Mike Callaghan _fee_based_management
Callaghan
Horton_fee_based_management
Horton
Kassab_fee_based_management
Kassab
fee-based management todd newby
Newby
Rogosich_fee_based_management
Rogosich

Many fee-based management companies are seeing an increase in demand for their services from owners of manufactured housing communities.

One of the drivers of the increase is the growing number of capital investors purchasing these properties — investors who have no experience managing land-lease communities. In other words, they need managers who have that experience, said Maria Horton, director of marketing for Newport Pacific, which manages 119 MH communities in 13 states.

Fee-based management comes in many forms

Horton defined fee-based management this way: “A contractual agreement between ownership and the property management company for oversight, development and betterment of a community.”

Some agreements only require management to collect rents, and report any problems to ownership. Other agreements ask management to handle all issues in the community, and only notify ownership with a periodic financial report, Horton said.

“It is truly in the hands of ownership as to what responsibilities the management company will assume,” she said.

Fee-based management companies charge clients in different ways. Some charge a percentage of gross rents, others charge a flat fee across the board. Newport Pacific charges monthly, either 4% of gross rents or a $3,000 fee — whichever is the greater amount, Horton said.

Fee-based management can encompass many tasks beyond collecting rents. Newport Pacific’s on-site managers, for example, oversee maintenance projects, issue legal notices for unpaid rent and park violations, and seek legal assistance when necessary. They prepare paperwork for tenant screenings and, when applicable, compile lease or rental agreements. They also do property inspections and inform tenants of items that need to be addressed. If ownership wishes, Newport Pacific can fill available mobile home lots in a community, either by renting park-owned homes or selling new homes, according to Horton.

Fee-based management companies can alleviate labor complications and liabilities for community owners by taking responsibility for all employment issues. For example, all managers and maintenance staff are hired as employees of Newport Pacific, Horton said.

fee-based management illustration home in good hands

Other Perspectives of Fee-Based Management

MHInsider queried other executives of companies that perform fee-based management services. Their answers are below.

There seem to be more companies providing fee-based management services for manufactured housing communities than there were a decade ago. Do you know why?

R.C. “Dick” Bessire, president of Bessire and Casenhiser:

Owners are getting older. They can’t keep up with all the new rules and laws, so they’re turning to professional management.

Todd Newby, president of Newby Management:

We receive several calls a month from community owners and/or investors looking to purchase manufactured home and RV communities who would like to speak with us about managing their community. Most of the investors calling us for management services make their living in other professions and rely on us to manage the day-to-day tasks for their community investment.

Michael Callaghan, managing partner of Four Leaf Properties:

The demand is massive. The influx of private equity firms into the space — particularly over the last five years — has opened a huge market for fee-based management. As all the newcomers to the space quickly learn, there is nothing easy about the MH business. It is a highly specialized, management-intensive business that requires a lot of expertise. You really cannot overstate the nuances.

The other lever that is often overlooked is technology. I like to comment that running an MH community is like running a car dealership and horizontal apartment complex all in one. You’re managing tenants and a piece of real estate while also acquiring, selling and financing homes. Good luck finding software on the open market that addresses all those needs! The best operators have built proprietary technologies and systemized platforms that rationalize those needs. Bottom line: You can’t operate these types of complex business models on the back of QuickBooks.

John Rogosich, CEO of MHPI Inc.:

The manufactured housing industry has become more sophisticated. Senior management and community managers now have designations as Manufactured Housing Manager and Certified Property Manager. These designations in turn require operating the MHC at a higher level of expertise, replacing the “mom & pop” mentality. We are closing the gap between apartment and mobile home community living due to the sophistication.

Mark Kassab, senior vice president of M. Shapiro Real Estate Group:

Many manufactured home communities that were owned by “mom and pop” operators over the past decade are being purchased by private equity groups and investors, thus resulting in a need for experienced management companies. Our company’s growth to approximately 15,000 fee-based manufactured home sites is split almost evenly between large private equity firms and private investors. The fee-based management growth has been attributed to the learning curve that owners want to avoid when buying a community. A strong fee-based management company will eliminate the learning curve and result in increased revenues with a reduction in expenses through efficiencies, all of which increase the value of the community.

What sort of services do fee-based management companies provide for manufactured housing communities?

Bessire:

For “mom and pop” operations, we basically do full service. We hand them a statement at the end of the year, and they turn the whole operation over to us. They trust us to comply with laws and maximize returns. We also manage for nonprofits. The bigger owners just want stable management they know they can grow with.

Newby:

I can’t answer for other management companies, but we provide a complete management service.  

Callaghan:

Of course — taking payments, posting rents, managing facilities, maintaining the community — those are all the simple ones. Those are generally done for a percentage of total rents collected.

The more complex services involve improving/constructing lots, ordering and setting homes, rehabbing used homes, marketing (digital, online) and sales management. Those services tend to be more commission-based and can even look more like a joint venture. The market is finally starting to recognize that there is huge value in partnering with people who understand how to in-fill. With cap rates at their current levels, most rent-paying lots are worth 25-50 percent more than they were just a few years ago. Partnering with a seasoned operator only makes sense when there’s this much demand in the market and still so much capacity. The opportunity cost of letting lots sit idle is simply too high.

Kassab:

A strong fee-based manager should be able to provide a turnkey solution to the community owner, handling all day-to-day management operations. This includes the collection of rent and security deposits and bank account reconciliations of expenses. The overall physical appearance of the property, evaluation, and training of all on-site employees, and the implementation of a marketing strategy to increase the overall occupancy of the property is a fundamental key to success.

Investors should look for a management company that manages all the repairs and capital improvement projects, employee oversight, and tenant applications. Of great importance is bringing new homes to the community and renovating/refurbishing the homes for sale/rent to increase community occupancy. Creating a web page and having proper flyers prepared for the homes available is essential to a community operation. The strategies used by an experienced fee-based manager will improve landlord/tenant relations and bolster resident involvement, thereby reducing tenant delinquencies and accounts receivable at the property. A fee-based management company must provide the full menu of services in order for an investor to see the value.

Which of those services does your company provide?

Bessire:

We’re full service. We also do brokerage work.

Newby:

As a third-party management company, we provide complete management for manufactured home and RV communities. Complete management for us includes the following: Day-to-day operations, rule enforcement, negotiate and manage service contracts, track insurance for vendors, attend meetings with residents, background check applicants, oversee insurance policies and risk audits, regular management reports, maximize tenancy through proven programs, oversee the rent increase process, full accounting, full human resource management, resident relations, marketing and sales, brokerage services, chaplaincy program and emergency services.

Callaghan:

We provide them all, but our primary emphasis is working with operators who need to in-fill lots at a considerable level. We’re unique in that we have an embedded mortgage loan origination company, and a loan technology platform, that we offer. That enables us to be a turnkey partner — everything from basic property operations all the way through to providing a digital platform for marketing, sales, loan origination and financing. Our primary operating partner is one who needs to bring in a lot of homes, has a lot of growth potential, and needs a comprehensive solution. We’re on the opposite side of the spectrum from the classic “charge a fee and keep the lights on” manager. We want to build a lot of value for our select partners and we want to leverage our platform.

Rogosich:

The services we provide are accounts receivable, accounts payable, budget planning, ordering homes, hiring management and maintenance personnel, providing monthly and annual financial statements, and visiting the communities.

Kassab:

We provide comprehensive services in-house, all included in one fee! The proper operation of any community requires all of these services to be implemented in order for a manufactured community to achieve its maximum potential. 

What are the advantages of fee-based management?

Bessire:

Professionalized management that maximizes returns for the individual investor or group. They don’t have to take complaints or negative calls from homeowners.

Newby:

Community owners can benefit from the investment in a community and not have to deal with the day-to-day operations while working in their chosen profession.

Callaghan:

I think an experienced property manager can out-perform an unseasoned one by 25-50% in the MH market. There are many flavors of MH communities, and there are many ways to derive value — through add-on services, better financing, operational efficiencies — as you move up the food chain. A seasoned management partner can move your property through that lifecycle and help you capture that value as you go. Simplistically, you don’t manage any two MH communities exactly the same way. They all have unique attributes that translate into accretive value if you know how to capture it.

Rogosich:

The advantage of fee-based management is an unbiased professional evaluation of the community. We can maximize the NOI and control the operating expenses. For example, within our company, our manager’s designation and experience will give the communities the resources they don’t currently have.

Kassab:

The financial advantage for an investor that utilizes an experienced fee-based manager should result in an increased value for that development. Many regions we manage have vendors that provide services to specific regions and fee-based managers with very distinct market knowledge in the areas they represent. An experienced fee-based manager will be involved with the state association, active with regional and national events that benefit the industry and are ahead of the curve on legislation that can impact the industry. We tell all of our clients, if they cannot see the value of the services we offer through increasing revenues, reducing delinquencies or reducing expenses, then we should not be hired. 

Have you noticed a greater demand for fee-based management from MH community owners?

Bessire:

We’ve noticed an increase in demand. Here in California, I probably turned down 20 contracts last year. We only want to run things in a way that makes us feel comfortable. Some people want us to run the community just to make revenue, not to keep up the property. They just want you to get the dollars for them.

Newby:

From our perspective, demand has been the same for the last several years.

Callaghan:

The demand is off the charts. I take two or three calls a week from prospects. Unfortunately, many of the new arrivals are just getting started, so they are a little too small for us. Fortunately, consolidation is still continuing at a rapid rate, and as it continues many of those small guys are amassing large portfolios pretty quickly. The challenge is that those portfolios are typically geographically dispersed, under-resourced and lack economies. So, the demand is accelerating, but with it comes a need for more advanced and sophisticated solutions to address the new challenges.

Rogosich:

Yes, there is a greater demand for fee-based management from MHC owners.

Kassab:

We started our fee-based management program during the recession in 2008. In the past decade, we have grown to approximately 15,000 pads under fee management in 27 states. The calls seem to come in daily from owners looking for an experienced property manager.