Firm Capital Property Trust continues to add to its manufactured housing community (MHC) portfolio after closing a deal to acquire a 50-per cent interest in 10 Alberta and Saskatchewan properties with a combined 1,649 residential lots for $218 million from Phoenix, Az.-based Cove Communities.

There was also a separate deal to acquire another Alberta MHC with 103 residential lots for $8.5 million from a private owner.

Firm Capital Property Trust purchased the properties through its existing joint venture arrangement with SunPark Communities, LP, so they each have a 50 per cent stake. SunPark is the MHC land lease division of Firm Capital that was created by Firm Capital president and chief executive officer Eli Dadouch.

SunPark is partially affiliated with members of the board and senior management of the trust and has invested in the MHC sector for almost 30 years. It’s one of the largest owners in Canada with 2,572 residential lots in Ontario, Alberta and Saskatchewan and the partnership with Firm Capital Property Trust has now made six acquisitions.

CAPREIT agreed to sell an MHC portfolio comprised of 12,138 residential lots spread across 75 properties located throughout Canada to an entity controlled by TPG Real Estate Partners for $740 million in July 2024. 

Firm Capital Property Trust president and CEO Robert McKee told RENX that the trust was unsuccessful in acquiring that portfolio and had previously reached out to Cove before its properties were listed for sale.

Firm Capital Property Trust acquired the Cove portfolio in the second round of bidding.

MHCs are stable assets

“They’re extremely stable assets, much more stable than a highrise multi-residential building,” said McKee of MHCs. “There are a lot less capital items that can go wrong with with these types of communities, and tenants tend to be very tied to the property. 

“Typically, when someone decides to leave, they put their home up for sale and sell the home on the site so it's not someone moving in and out of your building and you're left with vacancy. 

“Here, you're pretty much always occupied, even on the turnover of a unit, because you're just having someone move in once they acquire the actual home on top of the land that we're leasing.” 

Toronto-based Firm Capital Property Trust is a diversified real estate investment trust with a portfolio that includes multi-residential, industrial, net lease convenience retail and core service provider professional space. It’s current focus is on multi-tenant industrial, grocery-anchored convenience retail and multi-tenant residential — which the trust classifies MHCs as.

“We don't have specific allocations that we're trying to target, but we're going to acquire assets that make sense to us at the time,” said McKee. “If we think it's going to produce long-term stable cash flow, that’s something that we're happy to acquire as long as it fits into one of those three buckets.”

MHCs and purpose-built rental apartments now collectively represent approximately 30 per cent of the trust’s pro forma net operating income while retail and industrial real estate respectively represent 46 and 24 per cent.

Embedded upside in deal

There were 142 park-owned homes that are rented to tenants and 184 chattel mortgages acquired in this latest deal that will provide additional cash flow streams. The anticipated plan is to sell the 142 park-owned homes so that the trust is solely generating cash flows from residential lot rent.

The chattel mortgages are loans to owners of manufactured homes and have a 6.49-per cent weighted average interest rate and a 7.4-year weighted average term.

“There may be an opportunity for us to to sell that debt to either a related party or a third party to free up some capital,” said McKee.

The properties also include an additional 79 vacant sites that will be rented out along with additional density that allows for 92 expansion sites that over time could provide additional cash flow streams.

McKee said the trust and SunPark are in communication with mobile home manufacturers that they can purchase from to fill in these vacant sites before selling them to residents.

Property management and rent increases

Firm Capital Property Management Corp. is the property manager for the portfolio, which has a 94 per cent weighted average occupancy rate.
 
“The vendor laid off all their employees and we've hired everyone we wanted to acquire back,” explained McKee. “We've picked up a couple additional property managers and a senior person to run the Alberta portfolio.” 

Since these latest MHCs were institutionally owned and well-run — and most have amenities including clubhouses, gyms and play areas — McKee said their average monthly rent for a lot would be in the $900 to $1,300 range. Others that are privately owned or provide less may charge closer to $500 per month.

McKee said MHC rents in Alberta and Saskatchewan, where there are no rent controls, can typically be pushed to market rates in a couple of years.

Future MHC acquisitions

Although McKee said there have been rumours that Killam Apartment REIT would consider selling its MHC portfolio, there are none currently on the market so Firm Capital Property Trust is looking at opportunities to acquire individual MHCs. 

“It’s still a highly fragmented market in Canada with a lot of smaller one-off owners,” said McKee. “It's not an easy asset class to acquire scale with quickly.”