Financing Your Community
Feature Article: Anthony J. DiMarco and Gerard D. DiMarco
Almost every community owner at some point in time will experience the need for financing of some kind. There have been many ups, downs, and complexities of the financial markets over the past 25 years, and the impact these fluctuations have had on available loans has been huge. In this article we will address some of the important issues that community owners may face during the lending process.
Lenders are back after the credit crunch of a few years ago
Since the financial crisis that began around 2007, the capital markets began to slowly re-emerge in late 2010 and early 201 for manufactured home community lending on a wide scale. Today's lending market, combined with historically low interest rates, is the strongest it has been in years. Lenders are eager to provide long term fixed rate, non-recourse loans with 30 year amortizations on manufactured home communities. We are currently helping a customer refinance a five year commercial mortgage-backed security (CMBS) loan that closed in March 2010 (our records indicate it was one of the nation's first CMBS loan post financial crisis) with a ten year fixed rate loan at less than 4.25%. The existing loan the borrower is paying off had a rate of 6.5%.
A few other real world examples include recently helping a client lock a ten year fixed rate loan at 3.51%! Additionally, another client just secured a 4.2% long term fixed rate, replacing a rate of 6.5% from the previous note. The market has improved dramatically!
There are currently numerous lending platforms and options available for community owners including conduit lenders (CMBS), life insurance companies, Fannie Mae, Freddie Mac, credit unions, and traditional bank loans. There are also a wide range of product options and features available in today's financial market including bridge lending, short term floating rate debt, interest only, mezzanine debt, and flexible prepayment options. With so many options available, finding loan that suits your specific needs as a manufactured community owner is possible.
How to obtain a mortgage
There are two major components that lenders review when analyzing a loan request; the guarantor, and the property itself. On the guarantor side, most lenders look for an individual to have a credit score of at least 600 and a sufficient net worth. Even though most of the loans we offer are non-recourse, our lenders still look for those minimum requirements. On the property side, as a general rule, our lenders require a minimum loan amount of $500,000, a minimum debt service coverage ratio of 1.25x, and paved roads. There are also numerous aspects to manufactured home communities that make them unique compared to other asset classes.
Every community can qualify for a loan!
We have financed deals with low occupancies, private utilities, and low populations. However, having a better understanding of what lenders prefer can be helpful in assessing your property, or a potential acquisition, in preparation for a new loan. The type of loan and benefits of the mortgage depend on the checklist" of items a lender reviews. Some of the key components that determine the rate and terms of a loan include:
- Community quality
- Borrower experience and equity
- Loan-to-value (LTV)
- Financial and occupancy trends of the property
- Infrastructure quality - roads
