From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for April 2022

Manufactured Housing

leave a comment »

A great report crossed my desk this morning from Marcus & MillichapManufactured Home Communities National Report. These communities generally occupy a niche below apartments and rental houses. Housing shortages and climbing costs have increased demand across all of the residential sectors, including this one. In recent years, there has been a very real stagnation in the supply manufactured home communities, and so rents have climbed accordingly, although not as fast as for apartments and houses. Regional vacancy rates range from the low-teens in the Great Lakes region to below 2% on the west coast. Accordingly, average rents range from $460 to $488 in the Great Lakes and Gulf Coast regions (up from about $439 last year) to nearly $1000 per month on the west coast. In some high-cost areas, for example Santa Cruz, rents are nearing $2000.

Many of these communities appeal to retirees, and there is a sub-sector of “age restricted communities” among manufactured home communities. Vacancies are even tighter in this subsector, but rents tend to be somewhat lower.

According to Marcus & Millichap, investor interest “continues to grow” with “robust property fundamentals.” I would note that several REITs invest in this sector, including UMH Properties (UMH), Equity Lifestyle (ELS), and Sun Communities (SUI). UMH has enjoyed a 1-year total return of 26.51% as of this writing, while Equity Lifestyle has returned 22.52% and Sun Communities 21.61%. Note that this is not a recommendation to invest but reported for informational purposes only.

As always, if you have any questions about this or real estate in general, please don’t hesitate to reach out. I look forward to hearing from you!

John A. Kilpatrick, Ph.D., MAI — john@greenfieldadvisors.com

Written by johnkilpatrick

April 11, 2022 at 7:09 am

Posted in Uncategorized

ACCRE Report, March, 2022

leave a comment »

For you newcomers to my blog, ACCRE is Greenfield’s in-house REIT fund-of-funds. It’s a carefully curated fund, aiming for a 130-30 long-short strategy (although that’s a tough metric to meet in a generally upward trending market). Before I got bogged down in the winter, I generally reported on ACCRE monthly. I’ll see if I can get back in the swing of things again.

The last few moths have been great for ACCRE, and so-so for real estate in general. We benchmark ACCRE against the S&P500 as well as against S&P’s Global Real Estate Index. The question is how much would your dollar be worth today had you invested in each of these three indices. As you can see below, from the inception (March, 2017) until early 2021, ACCRE generally dominated all three indices. Then the S&P 500 took off on a tear and we’ve worked to keep up. Notably, the broad S&P real estate index has been positive, but with returns considerably lower than ACCRE. Why? Novice real estate investors often fail to appreciate the fact that different real estate sectors behave differently. The pandemic, for example, led to terrible returns in some areas (hospitality or campus housing, for example) but great returns in others (single family housing, data centers). As such, ACCRE has nearly erased about a year and a half of S&P advantage, and continued to outperform the broader real estate index.

We also track the SHARPE index for ACCRE and the S&P as well as the correlation coefficients between the two. The former gives a good measure of how much return an investor gets for a certain level of risk (measured as standard deviation of daily returns). The latter gives evidence of how a well constructed REIT portfolio can help attenuate risk by diversifying the overall investment portfolio.

S&P 500
Average Daily Excess Return0.0476%
Standard Deviation1.2424%
Sharpe Ratio3.8313%
ACCRE
Average Daily Excess Return0.0461%
Standard Deviation1.1724%
Sharpe Ratio3.9313%
Correlation Coefficient (life of the fund)48.5164%
Correlation Coefficient (month of March)11.6763%

Even though the S&P has enjoyed slightly higher returns over the life of the fund, the lower volatility in ACCRE makes it a more attractive investment on a risk-adjusted basis. Further, ACCRE has only been about 48% correlated with the broader market over the past 5 years, and almost totally uncorrelated this past month, boding well for portfolio diversification.

As always, if you have any questions about ACCRE, about REIT investing, or real estate in general, please drop me a note. I’d enjoy hearing from you!

John A. Kilpatrick, Ph.D., MAI — john@greenfieldadvisors.com

Written by johnkilpatrick

April 1, 2022 at 9:59 am

Posted in Uncategorized

%d bloggers like this: