The situation at Rancho La Paz Mobile home park, which includes parts of Fullerton and Anaheim, in which residents were slapped with 44-60% rent increases when a new owner took over, is part of a much larger national trend, according to a recent report. This trend was the subject of a recent episode of John Oliver’s “Last Week Tonight.” We will examine this growing trend, but first here’s some information about the new owner of Rancho La Paz.
About John Saunders’ Other Mobile Home Parks: A Trend of Predatory Behavior
Rancho La Paz is not the first mobile home park that John Saunders and his investment partners have purchased and drastically increased the rents, causing problems and outrage.
Four other parks have been tracked directly to Saunders; Shorecliff, and Pacific Mobile Home Park (Surf City Beach Cottages) both in Huntington Beach; Rancho San Luis Rey in Oceanside; and Palm Beach Mobile Home Park in San Clemente. Because Saunders buys the properties under various Limited Liability names it is difficult to track just how many he owns.
He also appears to be a partner of Pacific Current Partners (PCP) which includes principals Robert Coldren, and Mike Cirillo (also owner of Star Management). A January, 29, 2016 press release from the PCP company website states: “Pacific Current Partners, a manufactured housing investor group led by industry veteran Mike Cirillo and Saunders Property Company recently partnered to acquire Palm Beach Mobile Home Park in San Clemente for an undisclosed amount…This transaction represents the eighth manufactured housing acquisition for this team in the last two years.” PCP now owns 19 mobile home parks while Star Management lists 27 across the country.
A 2014 article by Vern Pat Nelson on the Orange Juice Blog explains what happened in Huntington Beach:
“Saunders swooped into [Huntington] Shorecliffs in 2008 like a tornado, with his attorney Robert Coldren, (famed for fighting against mobile home park rent control up and down the state). Coldren immediately announced to all the seniors, some of whom had been there for decades, that they’d lived there too long and too cheap, and we’re going to do something about that! True to his word, he immediately raised rents $400 to $500 a month, got the park designated ‘all age,’ and began his slow program: Over 130 seniors now forced out, living with family, homeless, disappeared, dead. And Saunders’ profits soared!”
Saunders did the same thing when he bought Pacific Mobile Home Park in Huntington Beach: “A family park mere steps from the beach, Pacific had been run as long as anyone could remember by a pair of brothers who rarely raised rents much. But the moment Saunders got his hands on the place last year , longtime residents got the same lecture from Star Management/Michael Cirillo that Shorecliffs residents had gotten from Robert Coldren: ‘You people have been paying too little for too long, and we’re going to take care of that!’ Most rents went up by $100 last summer, and then by another $400 in January, for a total of 62%,” Nelson wrote.
A 2015 article in OC Weekly describes the situation across Orange County’s mobile home parks: “In response, residents began to fight for rent controls and other ordinances to protect themselves; they failed in Anaheim, Dana Point, Garden Grove, Huntington Beach, Laguna Beach, Lake Forest, Stanton and Villa Park. Such losses weren’t surprising: Only 3 % of cities in Los Angeles, San Bernardino and Orange counties mandate rent control, according to GSMOL [Golden State Manufactured Homeowners League]…The only Orange County city that offers rent control is San Juan Capistrano, which passed a mobile home rent-control ordinance in 1978. At the time it was written, the ordinance noted a ‘shortage of spaces for the location of mobile homes’ and the need to protect residents from ‘unreasonable space rents.’ It has withstood several challenges, traveling all the way to the California 4th District Court of Appeal in 1989.”
The problem is a relatively new trend in which private equity firms and corporations buy up mobile home parks that were formerly family-owned (like Rancho La Paz) and view them as a speculative investment.
“Parks that are still family-owned have had no problems or controversy, continuing to raise their rents 2-3% a year as they have for decades; only the ones taken over by corporations, with their relentless and brutal pursuit of profit, have suffered the crimes against humanity we’re documenting today,” wrote Nelson.
How Rent Stabilization Works
The city of Oceanside has a rent stabilization ordinance, which has been in effect since 1985. At its last meeting Oceanside’s Manufactured Home Fair Practices Commission, which sets annual increases according to the Consumer Price Index, did so for 12 of the 16 mobile home parks in Oceanside. Saunders and owners of three other parks are challenging the approved “rent ceiling,” and will be back before the commission on May 2.
The 433-space Rancho San Luis Rey Mobile Home Park in Oceanside was purchased by Saunders & Co. from J. Richter, (at the same time as Rancho La Paz was sold to Saunders by Richter).
Under the rent stabilization ordinance, park owners must apply for rent adjustments (i.e. increases) each year. The increases must be less than 75 % of the percentage increase in the Consumer Price Index (CPI) for the applicable calendar year, or a flat 8% (whichever is lower).
So, for example, the Bureau of Labor Statistics CPI for all items for San Diego County in 2018 was 3.4 percent. (75% of 3.4% = 2.55%). Therefore, the percentage increase for the purpose of calculating the space rent increase is 2.55% for mobile home parks in Oceanside in 2019.
That’s basically how rent stabilization works. By tying rent increases to the Consumer Price Index, it prevents predatory speculative investment and outrageous rent hikes. However, mobile home spaces that are under lease agreements are not protected under stabilization, nor are those mobile homes that have been purchased by park owners.
Otherwise the system seems to be working well to give both mobile homeowners and park owners a fair predictable annual increase.
Unfortunately, as was reported by the OC Weekly, there is considerable political/ideological opposition to rent stabilization by some.
Will officials of the cities of Anaheim and Fullerton look at the data, and not ideology, and consider fair options to protect local residents? Time will tell.
A National Trend
A recently-released report entitled “Private Equity Giants Converge on Manufactured Homes: How Private Equity is Manufacturing Homelessness & Communities are Fighting Back” takes a deep dive into this growing national problem. Here are some excerpts from that report:
Within the last few years, some of the largest private equity firms, real estate investment firms, and institutional investors in the world have made investments in manufactured home communities in the US…The top 50 manufactured housing community owners now own around 680,000 home sites. With more that 150,000 home sites, private equity firms and institutional investors now control a substantial portion of manufactured home communities.
Manufactured home communities provide affordable homes for millions of residents and are one of the last sectors of affordable housing in the United States. Across the country, they are home to seniors on fixed incomes, low-income families, immigrants, people with disabilities, veterans, and others in need of low-cost housing.
In these communities, homeowners own their homes but rent the land on which their homes sit from a community owner. For most residents, it is nearly impossible to move their homes because the structures cannot withstand the move, the costs of moving them are unaffordable, and finding a new spot is untenable. When community owners raise the lot rents, residents are trapped, choosing between paying rent and abandoning their home.
This structure makes manufactured home communities a very stable source of revenue for investors, including during economic downturns, and makes residents vulnerable to exploitation. Real estate investment groups seized on this vulnerability and built a highly profitable business model with devastating effects on low-income seniors and families.
Private equity investors are relying on manufactured home residents’ limited mobility to ensure steady revenues, squeezing fast profits out of low-income families and seniors.
This economic trap is not a side effect but a building block of the business model. RV Horizons co-owner Frank Rolfe notoriously said that a manufactured home park “is like a Waffle House where the customers are chained to their booths.” Kevin Bupp, CEO of Sunrise Capital Investors, advises other prospective manufactured home investors to “raise rents upon purchase, as doing so ‘goes immediately to your bottom line.’ Charging residents for utilities ‘allows you to pass your expense directly on to the resident and make a ton of extra money,’ he adds.
As more and more private equity and real estate investment firms invest in manufactured home communities, the residents of these communities – seniors, low-income families, immigrants, veterans, people with disabilities, and people displaced from higher cost places – fear the investments will manufacture homelessness.
Private equity investments striving for short-term gains and a quick exit are not intended to create a sustainable housing system or community.
This business model’s impact on residents is exacerbated by the physical distance between the investors and the residents whose lives they are impacting. Unlike a local landlord, investment managers likely see the communities simply as speculative investments, not homes or humans. At the same time, residents who receive mysterious notices of management changes are left wondering who owns their community, who is dictating the decisions about upkeep of their community and their rent, and how residents can reach them.
Personal Stories of Residents Affected by These Business Practices
Here are some personal stories from the report of individuals across the country who have been negatively impacted by these business practices.
Maribeth Sheedy (Akron, NY) lives in a Sunrise Capital Investors-owned community: “Our community was bought by an out-of-state investor, Sunrise Capital Investors (SCI), in November 2017. After they purchased our community, we were shocked when they tried to double our lot rent…We decided enough was enough and went out on rent strike. Their proposed rent increase will economically evict many of our neighbors. We are demanding that SCI sit down and negotiate with us on rent levels and community maintenance issues. Our campaign has made it clear to us that we need greater protections for residents under New York State law to prevent predatory investors, like SCI, from destroying our communities. Everyone deserves a place that they can call home, and these corporate owners need to treat our communities with respect.”
Judy Pavlick (Sunnyvale, CA) lives in a Carlyle Group-owned community: “I chose to move into a manufactured home community because I could afford it, period…In October of 2015, the Carlyle Group bought our community. Since they took over, there is a dark cloud that has fallen over the community. The previous owners didn’t tell us that our community was for sale. It was just dropped on us like a bomb. When we got our first rent increase of 7-8%, no one could believe it. Previous increases had been 3-4%. All of a sudden we were hit with an increase of $75 or more per month. That’s a lot of money for many people in our community. Nearly half of us are on fixed incomes. People are having to move.”
Pat Bohlen (Urbana, IL) lives in a TPG Capital-owned community: “The bottom line is the rent will continue to rise unless corporate or state policies change, and I just won’t be able to afford it. Even a good manager can’t change the company wide policies that are aiming to make as much money off of all of us as possible. That’s why I’m pushing for corporate changes and working to legalize rent control in Illinois. Our communities need immediate relief from rising housing costs. Our local elected officials need rent control in their policy toolkit to protect our low-income seniors and struggling families.”
Maria (Lupe) Guadalupe Rico Aguilar (Santa Ana, CA) lives in a Kingsley Management-owned community: There are many Spanish speakers in my community. Some of them are undocumented. They are very vulnerable and easy targets for harassment. Management takes advantage of them. They tell families that to get a service request filled you have to show a California ID, knowing that many undocumented people don’t have an ID, just to avoid the request…They target Latino people to take advantage of them…”
What Can Be Done?
But even in the face of multi-billion-dollar, multi-national investors, residents are joining together and fighting to protect their communities. Across the country, manufactured home residents are organizing, researching the real estate and private equity investors that have bought their communities, engaging their public officials and allies, and building coalitions with tenants. Powered by the love of their communities and compassion for their neighbors, they are demanding their homes, economic security, and health are protected from the impacts of short- term speculative investment.
The report lists several actions that community owners and policymakers must make to protect manufactured home residents. Here they are:
1.) Preserve Affordability: The critical mechanism for protecting residents from exploitation and preserving affordability is stabilizing rent and fees, including lot fees, rents paid by tenants, and utility costs…Local and state government should establish rent regulations to stabilize rents and protect against unconscionable rent hikes. Such regulations allow for reasonable and gradual rent increases.
2.) Prohibit Unjust Evictions: In addition to rent hikes, a key strategy of corporate community owners is aggressive eviction. If evicted, manufactured home owners can often only resell their home for a fraction of what they paid for it or cannot resell at all and hand it over to the corporate owner…To prevent “eviction mills” we need “Good clause eviction laws.”
3.) Ensure Safe and Healthy Community Maintenance: Another mechanism for extracting short term profits out of these communities is limited or even decreased maintenance…Local, state, and federal government must ensure that community owners are held to a strong code of maintenance, implement transparent systems for residents to have input on maintenance, and have on-site managers.
4.) Ensure Residents Fair and Equal Treatment: Local, state, and federal governments must ensure residents are protected from: retaliation for organizing their neighbors, speaking up, complaining about community conditions, or otherwise attempting to enforce their rights or protect their community; fraudulent or exploitative lease terms, such as rent to own contracts that deny residents basic tenant protections and force them to lose the investments they made in the home; corporate community owners serving as exclusive real estate agents and controlling homeowners’ right to sell their home, which often leaves residents with no choice but to abandon their homes, while corporate community owners benefit at their expense.
5.) Institute Transparent, Meaningful Complaint Procedures for Residents: Residents need a clear path to report problems with health and safety risks, mismanagement, lease provisions, invoices, and any other problems in their communities. This is especially true when the owner of their community is an out-of-state investor that they do not know and cannot contact. Community owners need to institute transparent, meaningful complaint procedures and states should require them.
6.) Provide a Meaningful Path for Resident or Public Community Ownership: A critical step to protecting the affordability, viability, and safety of manufactured home communities is creating a path for residents or non-profit or public agencies to own them. Around the country, cooperative ownership of manufactured home communities has proven to work. When residents own their community, families and seniors can afford to stay and they invest in their community, its buildings, amenities, and infrastructure. State government can provide a meaningful path for resident or public ownership.
7.) Stem Predatory Investments: We must ensure that the government is using its powers to protect low-income people from predatory investments and is not pressured by investors to support wealth extraction from low-income communities. Manufactured housing is one of the three underserved markets that Fannie Mae and Freddie Mac are required to serve as part of their obligations under the Duty to Serve Program. Fannie Mae and Freddie Mac must increase financing opportunities for residents, government entities, and nonprofit organizations to purchase manufactured home communities.
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