Supply Chain Woes Just Got Stormier

by Kevan Enger

TThe perfect storm of supply chain woes. That’s what has transpired over the last year and a half.

COVID-era supply chain bottlenecks, ships blocking canals or waiting out at sea to unload, historic labor shortages, a severe lack of raw materials, skyrocketing fuel and materials prices, and most recently, a war, have disrupted the supply chain landscape at every level and from every angle.

If I had gone to see a movie with that storyline, I likely would have commented to my wife that it was unrealistic — that the writers had gone overboard.

This is not a movie and the plot just thickened with widespread economic implications.

One of the questions those of us in the manufactured housing industry have is how will the supply chain storm affect the mobile home park asset class?

The impact is and will continue to be broad and at every level with longer lead times, higher prices, and reduced revenue. Longer Lead Times

Industries across the board are experiencing supply chain backlogs and longer lead times.

Even before the recent developments in Eastern Europe, backlogs were impeding the industry’s ability to meet demand.

According to a January report by the Texas Real Estate Research Center, manufactured housing is seeing supply chain delays with delivery times estimated at 40 weeks. That’s just over nine months, and we’ve even heard of wait times of up to 12 months.

The recent developments in Ukraine could cause further lags as production and sourcing of materials from the region are either halted or blocked.

Despite the challenges, there are bright spots.

One such silver lining is that the fading pandemic is opening the doorway for more workers to head back to work. »

In February of this year, total nonfarm payroll employment rose by 678,000, according to the U.S. Bureau of Labor Statistics. April followed with 428,000 new jobs, and the unemployment rate dropped to 3.6%.

Led by gains in leisure and hospitality, professional and business services, health care, and construction, job growth was broad and diverse.

After little change in the previous month, the construction sector added 60,000 jobs in February. Month-over-month, about 3/4 of the gains took place in specialty trade contractors, with jumps in both the residential (+24,000) and nonresidential (+20,000) sectors.

Construction employment is now only slightly below its February 2020 level.

Manufacturing alone added 55,000 jobs in April.

In the manufactured housing sector, companies were able to grow their payrolls and increase clocked hours. As a result, the more present, healthier, and more productive workforce tackled the backlog to continue to move the industry forward.

Home production increased in the first quarter, per the latest Texas survey.

Meanwhile, shipments increased 16.2% and 14.7% in February and March year-over-year, per the most recent data.

While the industry is efficient and the industry has managed to

According to the latest U.S. Census Bureau numbers, the average sales price of new manufactured homes jumped approximately 36.5% year-over-year, as of December 2021.

ramp up production and increase shipments, there is only so much it can do if raw materials are unavailable, labor is tight, and there are delays in the pipeline.

The longer lead times are and will continue to have a trickle-down effect. For mobile home park owners, the extended wait will mean delays in infilling vacant lots and bringing in new residents. Reduced Revenue

No mobile home park owner or investor wants an empty lot.

An empty lot means less rental income and an artificially low occupancy metric. This, despite the strong demand, and rising occupancy and rent collections.

The delay in deliveries and supply chain bottlenecks restrict new owners from efficiently executing their business plan to bring in new homes, make improvements, attract higher caliber clients, and add value at the originally projected rate. Existing owners also are hampered in making upgrades, bringing in new tenants, and improving the overall quality of the community.

And delays in home deliveries aren’t the only ramification of the supply chain snarls.

Inflation is at a 40-year high as rising prices in everything from food and cars to gas and construction materials are impacted. Manufactured homes, of course, are not immune from the price hikes. And no matter where price hikes occur, it has a negative impact on the monthly revenue for each household.

The increasing price of gas, steel, labor, lumber, and everything in between are all contributing factors to the home price increase. Steel mill products, for example, were up 113% year-over-year in January, according to Construction Dive, a leading news site on construction news and trends.

Per the most recent Producer Price Index, softwood lumber experienced a 22.7% year-over-year in March of this year.

Higher prices for raw materials translate to higher costs. Higher costs mean higher benchmarks have to be reached to achieve favorable returns.

With mobile home park prices already at historic highs, will cap rates be affected? What can sellers and investors expect?

Cap Rates

Mobile home parks undoubtedly benefit from the exceptionally high need and demand for affordable housing, restricted market entry and supply, and value-add opportunities. These beneficial factors are not going away in the short term.

However, longer lead times, delayed revenues, and higher prices will have an impact in the short term. Tempering that impact, at least as it compares to other asset classes, is that rising prices and supply chain delays are hitting all property types.

While I don’t expect reduced cap rates to be a concern for investors in the short term, they could be on the horizon.

For owners, now is the time to take a hard look at the impact of this particular storm and consider if you are prepared and willing to weather it or not. MHV Kevan Enger is a partner and manufactured housing director for Capstone MH. He specializes in helping mobile and manufactured home park property owners across the country successfully position, market, and sell their properties to maximize their returns. Capstone has seven offices in five states throughout Florida, the Southeast, Midwest, and Mid-Atlantic.

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