Chateau Communities, Inc.
Chateau Communities, Inc.
Sales: $192.2 million (1999)
Stock Exchanges: New York
Ticker Symbol: CPJ
NAIC: 521190 Lessors of Other Real Estate Properties; 525930 Real Estate Investment Trusts; 531311 Residential Property Managers
An owner, manager, and developer of manufactured home communities in the United States, Chateau Communities, Inc. is the country’s largest self-managed, self-administered real estate investment trust (REIT). As a REIT, the company owns and manages 165 properties (with 51,000 + homes), while it man-ages-only another 44 communities (with 9,700 homes). All told, Chateau Communities serves about 130,000 residents. Though Chateau has properties in 34 states, its greatest presence is in the states of Florida and Michigan. The company was formed in 1997, when Chateau Properties merged with ROC Communities.
Chateau and ROC in a Favorable Market
Based in southeastern Michigan, in Clinton Township, Chateau Properties had owned, managed, and developed mobile/ manufactured home communities in Michigan and Florida since 1966. ROC Communities was founded in 1979 in Englewood, Colorado, to own and manage mobile home parks and grew to include properties in Florida, Georgia, Indiana, Colorado, Montana, and Wyoming.
The merger of the two companies occurred at a time of renewed interest in manufactured homes as a housing alternative. While mobile home parks had proliferated in America in the 1970s, with half of new housing starts in 1972 being manufactured home sites, the industry had overbuilt and the parks did not begin to fill until the mid-1980s. By the early 1990s, manufactured homes rebounded as a new form of affordable housing. Manufactured homes differed from mobile homes in that they tended to move only once, from the factory to the homesite. Better construction of the prefabricated homes and more pleasant surroundings, with amenities, graceful landscaping, and the look of permanent homes, transformed manufactured home communities into a desirable housing alternative.
Chateau Estates and ROC Communities sought to capitalize on the growing demand for manufactured homesites and on new investor interest through separate public offerings of stock in 1993. Manufactured home communities became an attractive investment on Wall Street due to their stability. The cost of relocating a mobile/manufactured home resulted in low resident turnover while the low cost of operations and the low rate of loan defaults made the industry a fairly low-risk investment. Wall Street’s support for manufactured home communities spawned consolidation within the industry as well as new manufactured housing developments.
History of Chateau
Originally named Chateau Estates, Chateau Properties, Inc. incorporated prior to an initial public offering in late 1993 in conjunction with a merger with two other companies. To Chateau Estates’ 20 properties in Florida and Michigan, Mass Manufactured Home Group added six properties in western Michigan and Intercoastal Communities, Inc. added 17 properties in Florida. With a total of 15, 261 homesites at 33 properties, the merger placed Chateau Properties among the largest manufactured home community operators in the country. The company organized as a REIT and operated primarily under the newly formed CP Partnership Limited. Operation as a trust allowed for tax-free revenues as long as the company distributed at least 95 percent of net income to shareholders.
Through the offering of 5.7 million shares of stock, at $20 per share, Chateau Properties raised $110 million which allowed the company to acquire and expand several manufactured home communities. In January 1994 the company acquired a 129-site community in Spring Lake Township, Michigan, adja-cent to the company’s Country Estates property. The $2.5 million acquisition of Forest Lake involved land already zoned for additional homesites. Expansion began in June, adding 37 homesites for single and multi-section manufactured homes. The company also added 63 new homesites at Chateau Anchor Bay, for a total 1,213 sites there. In July Chateau Properties acquired Lake in the Hills, a 238-site community in Auburn Hills, Michigan, for $7.3 million.
Chateau Properties began a $1 million expansion of its premier manufactured home community, Chateau of Grand Blanc. Amenities at the property included a community center with banquet facilities, a games room, and a fitness center while outdoor facilities included a swimming pool, baseball diamond, volleyball and basketball courts, and two playgrounds. To the existing 337 homesites, the expansion added 78 sites for multi-section homes on lots from 5,000 to 6,000 square feet, the largest homesites in the company.
Expansion outside of Michigan involved the acquisition of properties in Minnesota, North Dakota, and Florida. In September 1994 Chateau Properties purchased seven mobile home parks from NHD of Minneapolis for $44 million. The transaction yielded the company two properties in Fargo and one in Grand Forks, North Dakota, and four properties in Minneapolis, for a combined total of 2,116 sites. Chateau Properties purchased two all-adult communities in Florida in 1995. Del Tura, in North Fort Myers, featured 1,343 homesites which surrounded a 27-hole golf course. In September Chateau Properties purchased the Hidden Valley manufactured home community in Lake Buena Vista, with 303 occupied homesites. The company paid $6.1 million for Hidden Valley, a transaction which comprised $2.6 million in cash and $3.5 million in Operating Partnership units of stock. By July 1996, when Chateau Proper-ties announced the merger agreement with ROC Communities, Chateau Properties owned and managed 44 properties with 19,594 homesites in four states.
History of ROC
Like Chateau, ROC Communities had also gone public in 1993. The principal owners of Clayton Homes, Inc., the largest producer of manufactured homes in the United States, and ROC Properties formed ROC Communities earlier that year. Prior to the public offering of stock, 6.3 million shares for $19.25 per share, ROC Communities acquired ROC Properties. At that time the company owned seven communities and managed 77 communities for a fee. Immediately after the stock offering, ROC Communities acquired 20 fee-managed properties from affiliated limited partnerships for $62.1 million and 20 fee-managed properties from The Windsor Corporation for $57 million. By the end of 1993 ROC Communities acquired an additional eight communities from unaffiliated sellers for a total investment of $34 million. The company offered the property owners cash or the tax-deferred option of a stock transaction. ROC Communities continued to manage 37 properties.
ROC Communities utilized funds from a secondary offering of stock to further growth. In 1994 the company grew to 62 properties in 23 states through the acquisitions of 14 manufactured home communities for $95 million. Approximately $32 million of that investment went to the purchase of five communities in California, a new market for the company. The following year ROC Communities purchased six properties for $35 million, bringing the total number of homesites to 18,078. In 1995 the National Manufactured Housing Congress voted ROC Communities the National Manufactured Home Community Operator of the Year for the third consecutive year.
ROC Communities expanded through acquisition and new development in 1996. In January the company acquired a 354-site home park in Cincinnati; the 52-acre property cost $9.75 million. The following April the company purchased a 235-site community in Albion, New York, for $4 million. The property consisted of 117 acres with 55 new homesites approved for construction, plus an additional 50 acres for future expansion. Four additional acquisitions involved 2,275 home-sites, bringing the company’s total properties to 72 with 20,940 homesites.
In a joint venture with McStain Enterprises of Boulder, Colorado, ROC Communities developed an 87-acre manufactured home community in Longmont, Colorado. Long View Park accommodated 401 homesites on lots which averaged 5,000 square feet and rented for $285 to $380 per month. Home prices ranged from $58,900 to $75,000. Financing through a personal property loan enabled a buyer to purchase a manufactured home with a minimum $3,000 down payment and about $150 in fees. The premium, factory-built homes included 2-by-6 metal construction, R-19 rated insulation for heating and cooling efficiency, better carpet and appliances, decks, and enhanced landscaping. Amenities at Long View Park included a 3,000 square foot clubhouse, built in a rustic style with logs and stone, a playground, a swimming pool, and 15 acres of parks and green spaces.
The company’s mission it to create valued residential relationships by providing a welcoming environment, quality products and resident services in attractive settings, in partnership with our residents, employees, and shareholders.
The 1997 Merger
ROC Communities and Chateau Properties announced their agreement to merge in July 1996, but competition in the industry delayed the transaction. The two companies planned a merger of equals, an equal stock swap rather than one company acquiring the other. In 1995, Chateau Properties revenues reached $62 million and net $5.3 million profit, while ROC Communities garnered $51.5 million and net $11.5 million. Plans for the merger attracted two unsolicited offers from companies which sought to acquire Chateau Properties. Chicago Real estate magnate Sam Zell’s Manufactured Home Communities (MHC) made a tender offer of $26 per share, while Sun Communities of Farmington Hills, Michigan, made a similar offer. After Chateau Properties rejected both offers, MHC tried to block the merger, valued at $21 per share in a tax-free stock swap. During the delay, the two companies formed a joint venture to develop seven new communities with 2,900 homesites.
In early 1997 shareholders at both Chateau Properties and ROC Communities voted in favor of the merger. In accordance with an adjusted agreement, shareholders at ROC Communities received 1.042 shares of stock in Chateau Properties, later renamed Chateau Communities. Leadership changes placed Gary P. McDaniel, CEO of ROC Communities, as CEO of Chateau Communities, while C.G. Kellogg, president and CEO of Chateau Properties became president of the new entity. John Boll, chairman of the board of Chateau Properties, became chairman of the board of the Chateau Communities. The companies consolidated their main offices in Englewood, CO, while two division offices remained in Clinton Township and Atlanta. The merger created the largest company to provide sites for manufactured homes, with 128 owned and 32 managed properties, a combined total of 49,593 sites in 30 states.
The newly formed company pursued growth through acquisition, development of new sites at existing communities, and the inception of supplemental business activities. The company organized older, smaller manufactured home parks, which provided as few as 100 homesites, under a new subsidiary, N’Tandem Trust. In late 1997 the company purchased four properties in the suburbs south of Boston, for $20 million, obtaining 640 sites and 150 potential sites. The company completed the development of 509 homesites, adding 354 to its core portfolio of active, usable sites. At the end of 1997, Chateau Communities recorded 93.6 percent occupancy of the core portfolio.
The company formed another new subsidiary, Community Sales, Inc. in order to provide services to existing and potential residents. Community Sales provided real estate agent services to act as broker or agent in the buying and selling of new and pre-owned manufactured homes. One goal of the programs was to facilitate resident turnover in pre-owned manufactured homes at company properties. In 1997, the first year in operation, Community Sales sold 415 homes and brokered 800 home purchases.
In January 1998 Chateau Communities issued $100 million in securities to pay debt and for working capital and new acquisitions. The company acquired six mobile home parks and one recreational vehicle (RV) park and, shortly afterward, leased seven manufactured home communities and two RV parks. The 16 properties, located in Connecticut (4), Florida (10), and South Carolina (2), comprised a total of 2,333 home-sites, 1,359 RV sites, and 125 potential expansion sites. The transactions represented a $40 million investment of cash and Operating Partnership units. Continued acquisitions involved five communities in the area of South Bend, Indiana, and one in Mount Morris, Michigan, an aggregate total of 1,521 homesites plus 536 potential expansion sites purchased for $36.7 million. The company purchased an additional ten communities in Michigan and two in North Carolina, a $79 million investment for 3,036 homesites and 381 expansion sites. By the end of April, Chateau Communities owned and managed 165 properties with 50,690 homesites and fee-managed 32 properties with 6,600 homesites.
With Maryland home developer R. Wayne Newsome, Chateau Communities developed a manufactured home community near Baltimore, called New Colony Village. The company planned to develop approximately 300 homesites and introduced two-story manufactured homes, built in accordance with Housing and Urban Development (HUD) codes. Priced from $130,000 to $140,000, the homes featured one car garages, porches, and, for the first time in the industry, optional basements. The venture completed 100 homesites in 1998, during which time Chateau Communities became its sole owner. More than half of residents at the gated community paid $400 per month for rent. Designed for families, amenities included a day care center and a general store. The National Manufactured Housing Congress voted New Colony Village the Best New Land-Lease Community while Chateau Communities became National Manufactured Home Community Operator of the Year for the sixth consecutive year.
1999: New Businesses and Developments
In 1999 Chateau Properties stepped away from acquisition as a growth strategy. The company viewed 8,000 of 25,000 manufactured home communities as potential acquisitions, based on the number of homes in each community, on the quality of each community and its amenities, and on the company’s preference for metropolitan locations. The company acquired only two properties in 1999, both of which fit the portfolio of N’Tandem Trust, then holding a total of 31 properties.
As acquisition opportunities declined Chateau Communities initiated the Business Development unit to explore new areas of growth. The Business Development unit sought avenues of growth in existing business by providing new services to the company’s community residents. By the end of 1999 approximately half of the company’s properties offered shed storage rental, a total of 610 sheds which averaged $33 per month rent. Chateau Communities began to test market services which catered to its elderly clientele, such as prescription delivery, home health services, and rental of medical equipment, walkers, and wheelchairs. The company introduced Brinks security system at ten communities and Community Sales Inc. began to offer home financing and homeowners’ insurance. In addition to 587 homes sales, and 1,273 brokered sales, the subsidiary arranged 863 home loans, with fees averaging $1,600 fee per transaction.
- Chateau Estates is founded in Michigan.
- ROC Properties is founded in Colorado.
- ROC Communities and Chateau Properties become public companies.
- Merger of ROC Communities and Chateau Proper-ties is completed.
- New Colony Village in Baltimore is developed.
- Chateau is named Community Operator of the Year for seventh year in a row.
Continuing operations in 1999 related to the completion of 525 homesites at existing properties as well as 420 “greenfield” development homesites, including 44 at New Colony Village. At a new development at Onion Creek in Austin, Texas, homesites sat amidst rolling hills and mature trees. Antelope Ridge, near Colorado Springs, featured mountain views from its multi-section, two-car garage homes. The covenant-controlled community also included parks, playgrounds, a swimming pool, and a clubhouse. Company-wide occupancy remained steady at 93.2 percent and Funds From Operations increased 11.3 percent. Revenues increased 9.4 percent, from $173 million in 1998 to $189.4 million in 1999, while earnings increased from $26.8 million to $34.6 million. Assets neared $1 billion in 1999.
The company’s plans for the future involved investment in new property developments for manufactured homesites. Chateau Communities acquired a development property in Michigan and invested $16 million in nine joint ventures to develop new manufactured home communities. The company planned an assisted-living manufactured home community at its Colony Cove property in Florida, scheduled to open in 2001. With 130,000 residents at the end of 1999, the company set a goal to serve 200,000 residents by 2002.
Community Sales, Inc.; CP Limited Partnership; N’Tandem Trust.
Commercial Assets, Inc.; Manufactured Home Communities, Inc.; Sun Communities, Inc.
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