UMH Chairman Sees Manufactured Homes as Key to Affordable Housing

By Allen Kenney
New Jersey-based UMH Properties Inc. (NYSE Amex: UMH) owns and operates manufactured housing communities in the United States. Since being founded in 1968, the company has grown its portfolio to nearly 7,000 properties comprising 28 communities.
Eugene W. Landy, founder of the company, has served as its director since 1969 and chairman of the board since 1995. Presently, he also holds the position of president and chairman of Monmouth Real Estate Investment Corporation.
Landy recently sat down with to discuss his company's unique place in the REIT world, as well as his veteran's view of the ongoing dislocations in the commercial real estate market. UMH occupies somewhat of a unique niche in the REIT space.
Eugene W. Landy: Most people are not aware of how big the manufactured housing market actually is. At one point in time, the industry provided 15 percent of all housing in the United States. What are some of the market fundamentals currently working in UMH's favor?
EWL: People think there's a glut of housing in our country right now. The reality is that the growth in the population has been such that very shortly we'll be back to the old problem of providing adequate housing for our citizens. We're going to need 1.5 million houses in a year.
Meanwhile, 35 percent of population makes less than $50,000 per year. UMH views manufactured homes as a potential answer for this affordable housing shortfall. We think the manufactured housing industry will be able to increase production and go back to producing 150,000 and 200,000 houses per year.
Additionally, the liberal lending standards that created the recent housing bubble are not likely to reappear. Housing decisions will once again be made in accordance with reasonable and conservative underwriting standards. This should benefit the manufactured housing sector. UMH's portfolio is concentrated in New Jersey, New York, Ohio, Pennsylvania and Tennessee. Why these states?
EWL: We like the Northeast because it enjoys strong population growth, high income growth, better employment rates, and a more stable housing market relative to the other regions. However, we really have no geographic restrictions. In fact, we've always wanted to expand down into Florida. There are lots of opportunities in the Sun Belt right now. What is the biggest challenge facing UMH in the second half of 2009?
EWL: Regaining some of the occupancy that was lost as a result of the subprime housing debacle.
Lenders are no longer enabling borrowers to purchase more housing than they can afford. We would like to see growth in occupancy in the second half of 2009. Looking out longer term, whether through acquisitions, or through consolidation, UMH needs to grow to a more efficient size. You've been with UMH for 40 years. What has kept you interested in the company all this time? What do you consider to have been the company's greatest accomplishments during that period?
EWL: I've been around the REIT industry since 1968. I think the founders are very proud of the fact that we've established such a large industry. When REITs were created, the Federal Reserve said they would be important for the national economy, because they could create vast pools of capital to invest in commercial real estate. In the current financial crisis, REITs are re-equitizing their balance sheets, and I think they will provide the capital to take the real estate industry out of this predicament. With regards to UMH specifically, we've grown our assets and earnings over the long term and created much value for our shareholders. Prior to this most recent housing correction, we achieved 16 consecutive years of dividend increases. What is the most important advice you'd offer to executives in the commercial real estate business?
EWL: In the long run, between growth in the economy and inflation, you can make a lot of money in commercial real estate. However, you have to be able to survive the cycles. I think you can be 50 percent leveraged, so long as you carry long-term debt and have available liquidity.
In general, you have to keep a very conservative balance sheet so you can get through the bad times. I would also add that transparency has value. Much of the uncertainty in the public markets today is a result of overly complex structures. A lot of REITs now claim to be getting back to basics. This is where we've been all along.