Investor, ROC or NHC: Which owns your Park? Why should you care?

Which of these entities owns your park?  Do you know?  How your park is owned makes a big difference in your economic security, home value and quality of life.  Take a look at these three types of ownership and understand the differences.

Investor Ownership. Most of you who are reading this live in an “investor owned” park.  It’s easily the most common form of park ownership in California.  Investors buy, own and sell mobilehome communities to make money.  Some are “mom and pop” operators; others are real estate investment groups or large corporations.  All of these investors want to make a “profit.”  That’s not a crime.  But some owners are better park operators than others.

“For Profit” owners invest in mobilehome parks for many reasons.  Affordable housing is in short supply in California, so parks are usually full. The owners get a steady cash flow from rents.  The value of the park’s real estate goes up over time. When an owner sells the property, he usually makes a profit.  Most of the time, he sells it to another investor, and the cycle continues.

And where do you, the mobilehome owner, fit into this picture?  Well, legally speaking, you are a “tenant.”  Your mobilehome (which is probably your most valuable personal asset) sits on a “space” that you rent from the owner.  You have no ownership in the park’s real estate.  If things get bad, it’s nearly impossible to move your home someplace else. Your only option is to sell your home and leave the park.  Then, where would you live?

As a tenant, you have rights given to you by state and local law.  But for all practical purposes, your park owner controls the park where you live.  Unless there is a rent stabilization ordinance in your area, the owner decides how much rent you’ll pay each month.  He can raise rents whenever he wants, to whatever the market will bear.  How the property is maintained, and what gets fixed (or not) is controlled by the park owner.

How you are treated depends on the owner’s management philosophy.  If your owner manages the park well, you are fortunate.  But if your owner is not fair or considerate – your life isn’t so good.  Whatever your situation, the investor-owner controls the park. You and your neighbors don’t.

Ownership by ROC: Some mobilehome parks in California are owned by a “ROC.” This stands for “Resident Owned Corporation.”  In these communities, the homeowners first formed an association.  They bought membership shares in their association to raise some capital. Then, they found financing and bought the park for the benefit of the homeowners.   Of course, this required an owner who would sell the property to them at a fair price.  Many homeowner groups, even in low-income parks, have organized and financed these “resident buy-outs.”

After the ROC owns the park, things get better for the homeowners.  Again, it’s a matter of control.  When the homeowners own the park, they control its management and rules. They decide which improvements are necessary. They select a property management company to manage the park.  If that company doesn’t do a good job, the homeowners can fire it and hire a new one.  That’s something you could never do with your current “investor” owner!

When mobilehome owners buy their park through a ROC, there other advantages such as increased home values and stabilized rents.  One of the best benefits is they take control of their housing situation.

ROC’s should not be confused with “subdivisions.” In a subdivision, the park’s home sites are made into “lots” or “parcels.” Then, these are offered for sale individually to the homeowners.  In many cases, an owner-initiated subdivision is actually an attempt by the owner to “get around” local rent control.  To understand mobilehome subdivisions, see articles in the February 2007 issue of The Voice.

Ownership by NHC.  “NHC” stands for “nonprofit housing corporation.” These are sometimes called “affordable housing” corporations.  But what exactly are they?

These companies buy mobilehome parks, and then run them as “nonprofit” businesses.  They can do this because they’re incorporated under California law as “nonprofit” entities.  They’ve also been given “nonprofit status” by the IRS and State’s taxing authority.

NHC’s usually put “no money down” to buy a mobilehome park.  The purchase is 100% financed through municipal bonds issued by the city where the park is located.  When the city approves the bonds, the NHC uses the proceeds to buy the park from its current owner.  Sometimes, cities will also make loans or grants (money that does not need to be repaid) to help a NHC buy a park property.  Often, NHC’s acquire properties from “investor” owners.  Sometimes, a NHC will buy a mobilehome park that is already owned by a city.

To get financing help from a city, a NHC promises to stabilize rents in the park it wants to acquire.  It promises this in writing to the city in a “regulatory agreement.”  The NHC also promises to manage the park properly. The goal is to preserve the park as an affordable housing resource for the community.

How do NHC’s earn money?  They own the park over the long-term, charging fees for managing it.  This is their main source of revenue.  A NHC may also charge “transaction fees” when it acquires a mobilehome park.

Who controls the park after the sale?  Always remember: the owner controls the park.   NHC’s own their parks, so they control them as well.   NHC’s promise that the homeowners will have input into park operations, improvements, etc., but the NHC makes the final decisions about how the park is run.

Homeowners should be concerned if they discover that a NHC is interested in buying the park where they live.  That’s because all NHC’s are not the same. Some listen to the homeowners, and maintain and improve the park property.  Other NHC’s make promises they can’t or won’t keep, just to get ownership and control of a park.  Remember, there is much money at stake here.  If it can acquire the park, the NHC will be paid to manage it for many years.

Here is some good news: the homeowners often have the power to stop the buyout of their park by a “bad” NHC.  This is because a city won’t support a NHC if it believes the NHC in question is a “bad operator.” And without city support, the NHC can’t get financing to buy the property.  Mobilehome owners should help city officials investigate the track record of any NHC that tries to buy the park where they live.  If they don’t, they may find their park owned and controlled by a NHC that doesn’t keep its promises.

Summary.  It makes a difference who owns your park, because control follows ownership.  Every homeowner group I have worked with on a “park purchase” project has said, “let’s first try to buy our park as a ROC, so we will really own it and control it.”  Today, a ROC purchase is the only practical way mobilehome owners can get true ownership of their park.  It makes good business sense to try this approach first.

David Loop is a real estate attorney and past homeowners’ association president at resident-owned Aptos Knoll Park, near Santa Cruz.  You can ask him questions by sending an e-mail to deloop1@sbcglobal.net, or calling 831-688-1293.