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Paul Bradley is creating a scalable approach that enables the owners of manufactured homes to achieve full economic citizenship by cooperatively buying and managing the land on which their homes sit.
The New Idea
Paul is creating the pathway that will allow the country’s 2.7 million homeowners in manufactured home communities, also known as “mobile home parks,” to achieve economic security, fuller protections against excessive rents, threats to health and safety, eviction, and full economic citizenship through ownership and participation in a cooperative. His non-profit organization arranges the financing and other supports to transition manufactured home communities into resident-owned communities (ROC) that allow residents to jointly own the land under their homes, build assets over time, and democratically manage the community. Having led the expansion of the co-op sector in New Hampshire at the NH Community Loan Fund, one of the country’s innovative community loan funds, Paul formed ROC USA, LLC in 2008 to scale the work through a social venture national network and centralized financing. His work is helping to bring manufactured home cooperatives more fully into the fold of affordable housing in the U.S.—and at a time when subsidized affordable housing options for lower-income Americans are shrinking significantly. Paul works with a full-time focus and a lean team of six, leveraging affiliated regional organizations and partnerships with other national networks to achieve the scale he envisions. With partners and funders, he also dispels negative stereotypes about the people who live in manufactured home communities.
Although manufactured houses are more familiarly known as “mobile homes,” or “trailers,” they are not easily moveable and generally stay put. Yet in the eyes of the law, manufactured homes in “land-lease” communities are considered personal property rather than real estate. Thus they do not benefit from the legal protections and financing options that real estate enjoy and instead are defined as chattel—the same class as cars, couches, and other moveable property.
This classification is a holdover from the mid twentieth century, when mobile homes first evolved from their predecessor, travel trailers. But it does not reflect the current reality of manufactured homes as a homeownership asset. Today, most manufactured home residents do not choose their homes because of a promise of mobility—in fact, the large majority of manufactured homes never move from their original site of installation. Rather, most of the seven million people who live in manufactured home communities (MHC) do so for financial reasons. When combined with owners of manufactured homes on fee simple (“owned”) land, in fact, manufactured homes represent the largest source of unsubsidized affordable housing in America and often the only source of affordable homeownership in rural communities. With a price tag as little as $20,000, a manufactured home provides a way for many lower-income working people and groups with fixed incomes like retirees to achieve the American dream of owning a single-family detached house without any reliance on help from the federal government.
Implicit in a conventional conception of homeownership is ownership of the land beneath the home. But the 2.7 million owners of manufactured homes who live in the country’s 50,000 MHC upturn that assumption. Instead, they are in the unconventional situation of owning the home in which they live but not the land on which that home sits. These homeowners rent “pads” or “spaces” from commercial investors. These investors range from mom-and-pop landlords to absentee and highly profit-motivated Real Estate Investment Trusts and publicly-traded companies. Since the 1990s, the industry has trended in the direction of the latter.
This combination of security of homeownership and insecurity of land tenure makes the owners of manufactured homes America’s most vulnerable homeowners. For, like a tenant, they are subject to decisions made by a landlord (for example, decisions to raise the rent or close down or sell the MHC); but unlike say tenants in apartments, these homeowners do not have the flexibility to simply pick up and move without incurring considerable expense. It is this dynamic that has made MHC “cash cows” in the eyes of commercial investors in this niche. These homeowners are particularly at-risk when parks change hands as the new buyer seeks to maximize his/her economic position. When a community is closed, some of the displaced and previously unsubsidized homeowners end up stressing the overburdened federally-subsidized housing market in order to find something affordable.
Even in good “landlord/tenant” situations, the bifurcation of ownership of the home from ownership of the land poses its own inherent financial problems for homeowners in MHC. Inherent in the “American Dream of Homeownership” is the idea that over time your home will appreciate in value. However, in MHC, every increase in rent strips equity from the home giving the investor-owner of the land great influence over the value of homes. This inverse relationship between rent levels and house values and the insecurity of owning a home on rented land is at the heart of the problem, making owning a home in an investor-owned MHC a systemically weak source of affordable homeownership.
Further, the lack of protections from excessive rent increases and other risks associated with owning a home on rented land has left these homeowners completely out of the conventional residential financing system. Access to long-term mortgages at conventional market rates from traditional and trustworthy lenders such as banks and Fannie Mae is denied these homeowners because of this underlying bifurcation of land and home ownership. Their only access to financing is through personal property lenders who, in the best of times, charge 300 basis points more than conventional loan rates and offer shorter term loans. Even then, high loss rates has resulted in illiquid chattel finance markets which has led to house price devaluation beyond the broader market decline. For this largely low-income group of homeowners, their experience in homeownership is a missed opportunity to build wealth for their children and help get out of the cycle of debt that traps families in intergenerational poverty.
On top of the legal and financial hardships of owning a manufactured home, a social stigma also surrounds residents. In fact, “trailer trash” is one of few derogatory stereotypes that remain, by and large, permissible in mainstream America. Despite the increasing recognition within the affordable housing community of the important role manufactured housing plays, this class of homeownership remains distinctly misunderstood, misrepresented and undervalued by Americans.
Through his organization ROC USA, LLC, Paul is addressing the significant problems that affect owners of manufactured homes in MHC and has developed an approach to identifying partner communities and shepherding them through the process of developing a cooperative for the purchase of the MHC.
From its start in 2008, ROC USA® created two single Member LLC subsidiaries—one ROC USA Network which affiliates currently with eight non-profit technical assistance providers and operates in twenty-two states and a second, ROC USA Capital, which operates as a US Department of Treasury certified Community Development Financial Institution (CDFI). These two subsidiaries solve the two barriers to resident ownership: Access to expert assistance and timely and appropriate financing.
ROC USA Network looks for what Paul calls the “early wins”—MHC where ROC USA® sees strong potential for resident ownership. A number of factors—resident investment in their homes and length of residency, interest on the part of the MHC owner in resident ownership, the size (50 plus homes) and condition of the MHC, a state with policies that offer rewards for the transfer of MHC ownership to residents, market conditions such as the desirability of the land and the nature of the market competitor—combine to make ROC USA’s cases “winnable.” Early wins has served and will continue to serve as a proof of concept for the broader landscape of manufactured homes.
After identifying a viable “for sale” community, the national and local team from ROC USA Network seek consent from the MHC owner to approach homeowners, whom they gather together to assess community interest in purchasing the land as a group. This initial meeting serves as an opportunity to gauge not only interest but also leadership potential among homeowners. Very often, it is the first time some neighbors are meeting each other. If there is interest, ROC USA Network’s local technical assistance provider helps the homeowners create a not-for-profit democratic organization to make decisions; including hiring a lawyer and analyzing the community’s operating numbers and conditions.
ROC USA Network offers support during the assessment and deliberation process leading up to the decision to purchase the community by helping the resident corporation secure due diligence—which includes hiring an engineer—and arrange for financing.
Paul and his team stay with residents fully through the transition to resident ownership and for a contracted period post-purchase to help groups get set up and mature through the first several years. They also offer important linkages to community leaders in other resident-owned communities in the area and on-going training and leadership development opportunities.
Homeowners need both access to technical expertise and financing to achieve co-op ownership of the MHC. ROC USA Network’s affiliated non-profits serve as the “on-the-ground” expert assistance providers with backing from a national staff. To solve the financing challenge, ROC USA created a second subsidiary which operates nationally in order to most efficiently raise, deploy and manage capital and secondary market strategies. Financing for the co-op—a new business led by a democratically elected Board which likely does not include anyone who has run a MHC before—is not at present conventional market debt. For this reason, some of ROC USA’s most innovative work has by necessity been in securing financing.
ROC USA Capital, the second wholly-owned subsidiary, provides first mortgage commercial loans to co-op MHCs assisted by a Network-affiliated technical assistance provider. As a senior position lender of loans up to 110 percent of the MHC’s value, ROC USA Capital solves the co-op’s needs for financing with a timely and appropriate product, positioning co-ops to effectively and efficiently accomplish their goal of ownership utilizing commercial time-frames.
ROC USA Capital uses its balance sheet capital—both equity and debt—to hold junior or pari passu positions and leverages its balance sheet by selling senior participations in the loans. ROC USA Capital originates and services its loans; borrowers also receive on-going support from the technical assistance provider for the life of the loan. To ensure that, ROC USA Capital pays a “servicing fee” to the local non-profit provider solving a problem with scaling community economic development—the lack of on-going technical support for locally-controlled organizations, especially in the early years—by having the lender “pay for risk mitigation”.
Further, by limiting the type of co-op—a limited-equity co-op model—that Network and Capital will support, ROC USA is scaling a model of co-op ownership that is particularly well-suited to the MHC sector and democratic communities. The leveraged buy-out means that share prices in the co-op are low and affordable so everyone can easily join and vote on co-op matters. This is distinct from market rate co-ops with large share values which limit participation by all homeowners, especially those with low-incomes. Further, as a limited-equity co-op, share values remain fixed over time making it affordable for future owners. And, as a compromise, the co-op agrees to not take any profits from the sale of the MHC were future members to choose that. (None have in 28 years.) This limitation on the land doesn’t impact the house prices though which have been documented to out-perform the market (The Carsey Institute, 2006).
ROC USA is focused on both purchase as well as long-term success for co-ops and members. As Paul sees it, his pioneering work with “home in co-op” financing is a key element of a successful system. He began building on the base co-op work in 2001 by launching in NH a nationally-award winning “home in co-op” finance program and product in response to poor quality chattel finance products in this market. The outstanding performance of this loan product in NH has attracted conventional lenders to this historic chattel market. Paul is currently planning the launch of a national “home in co-op” loan product to complement Network’s co-op development work and Capital’s commercial loan product nationwide.
Those two base market interventions—locally-controlled resident-owned communities and decent “home in co-op” financing—are the key elements to secure and affordable “small home” communities. Paul believes fervently that the key is well-trained and supported community leaders—the NH leadership program is now college accredited—and on-going systems improvements to help local communities be successful.
ROC USA’s greening goal includes exciting opportunities for owners of older homes in co-ops to weatherize or replace their homes with EnergyStar rated new homes. This work is already being demonstrated in some communities on what Paul calls the “innovative front edge of the wave.” Paul and his colleagues have already proved the viability of the venture: In their first four years, ROC USA has helped co-ops purchase communities in twelve states, preserve over 2,100 affordable homes, and leverage over $71 million in commercial financing. This was accomplished during a period in which property sales plummeted and commercial financing was scare.
To be successful, Paul needs to lever more purchase opportunities for homeowners. For a start-up non-profit Network, this means building new skills and relationships and a reputation for delivering resident ownership “effectively and efficiently.” Most community owners dismiss the homeowners in their communities as viable buyers. ROC USA is out to change that. Paul is focused on market-based means of achieving this—they currently have a Grow Pipeline! Campaign underway and are good at identifying opportunities in the formal market through seller direct and listing brokers. Paul wants to try to capture the informal market, as well, and is aiming to engage industry and build relationships within industry in order to be successful.
As they grow their pipeline, Paul’s biggest challenge will be raising sufficient capital to meet borrower demand. His original business plan for ROC USA Capital included one or two national “senior exit channels” for their participation loans. In late 2008, five months after the launch, the $40 million term sheet with a religious pension fund was lost due to the national debt crisis. With institutional capital still on the sidelines, the managing director of ROC USA Capital and Paul have had to build numerous relationships with state housing finance authorities and other CDFIs in order to execute on transactions. This adaptation has worked but it has limitations, most notably on the size transaction possible (CDFIs are generally low dollar lenders) and it is time-consuming to work with a wide range of participants. Further, raising balance sheet debt through foundation and bank program-related investments has gone well but it too will soon run into limits. Paul is focused on securing private social investor capital and institutional capital to finance the growth.
Paul’s goal is for community owners to routinely provide homeowners with the opportunity to purchase their community, so that homeowners do not have to fear relocation and can begin to build assets. He is focused on market-based sector systems-change through scaling resident ownership and points to numerous advocacy efforts—including the homeowners themselves through the Manufactured Homeowners Association of America and their state HOA affiliates—that are seeking regulatory changes aimed at increasing consumer protections in a manner that works well in and alongside resident-owned communities.
Paul’s market-based focus is equally on creating opportunities for co-op purchases as well as supporting well-run co-ops because these co-ops need to compete in local markets, attract homebuyers and offer a good value proposition.
Paul sees this as long-term work within a large and important market for low-income homeowners in the U.S. Ultimately, he hopes to see demand for this segment of housing increase, and he believes that ROC USA’s bundle of cooperative land ownership and access to single family financing combined with a growing trend of energy efficient, aesthetically pleasing new manufactured homes will make this segment of housing increasingly attractive to the affordable housing sector at-large.
ROC USA’s budget of $1.7 million is supported in part by earnings along with start-up funding from the Ford Foundation, Fannie Mae, Enterprise, Bank of America, The F.B. Heron Foundation and NeighborWorks® America. Members of the LLC—the NH Community Loan Fund, NCB Capital Impact, and CFED—invested equity and sweat equity to launch ROC USA, LLC. Additional equity grants and loans have been secured from NeighborWorks, Ford, the CDFI Fund, the Calvert Foundation, the Rockefeller Foundation, Deutsche Bank, and Bank of America. In the first full operating year in 2009, ROC USA achieved a 30 percent earnings ratio. Paul is focused on operating break even in 2014.
Paul grew up in Penacook, NH in what he calls a “factory town.” He learned the value of hard work from an early age by pursuing his own odd jobs and helping out his parents who ran a pizza parlor. An average athlete with a passion for playing over watching still, he sees the teamwork he experiences on the basketball court as a metaphor for how to build successful teams in the workplace.
Following college, and a stint in Central America, Paul took a job as a mobile home park TA provider at the NH Community Loan Fund, which made its first loan in 1984. In the context of this role, he has learned the business of organizing communities into cooperatives and enjoyed a rich apprenticeship to explore what needed to be fixed and launch projects within the fund to fix them. With colleagues, he built the Community Loan Fund into one of the country’s most pioneering CDFIs, bringing technical expertise and loans for pre-development and purchase to homeowners who form cooperatives and jointly buy their community.
Through his exposure to the Corporation for Enterprise Development (CFED) beginning in 2001, Paul began to build relatio"All Thingsnships nationwide and explore the most innovative methods for scaling community economic development. He knew what resident ownership required and, in 2006, he began the work of solving how to undertake it nationally. In 2007, Paul pulled together three national non-profits, CFED, NCB Capital Impact, and NeighborWorks® America, and joined them with the Community Loan Fund to create ROC USA, LLC, a non-profit, capital-led social venture. The three LLC Members and NeighborWorks, a sponsor, each serves on ROC USA’s Board of Directors along with TA Providers and community leaders. Each Member and the sponsor brought capital and core competencies to ROC USA’s mission of making quality resident ownership and its benefits viable nationwide. The Ford Foundation provided the majority of the funding to launch ROC USA.
Paul lives with his wife and two children in New Hampshire, and works in Concord, NH.