10 Pads Unit Density

Understanding 10 Pads Unit Density in Commercial Mortgages

In the context of commercial real estate and mortgage underwriting, 10 Pads Unit Density refers to the concentration of individual lots, or "pads," within a mobile home park (MHP) or manufactured housing community (MHC). Specifically, it indicates that there are 10 designated rental sites per acre of land. This metric is a critical factor for lenders when determining the risk profile, collateral value, and loan eligibility of a property.

Density is calculated by taking the total number of permitted pads and dividing them by the total acreage of the parcel. While density standards vary by municipality and age of construction, 10 pads per acre is generally categorized as high density in the modern commercial mortgage landscape.

Lenders scrutinize 10 pads unit density for several reasons that impact the long-term viability of the mortgage:

• Infrastructure and Utility Strain: High-density parks place significant demand on private utilities, such as septic systems or well water. Lenders may require more frequent inspections or higher replacement reserves for properties with 10 pads per acre to ensure the infrastructure can handle the load.
• Marketability and Tenant Quality: Communities with higher density often have smaller lot sizes, which may limit the ability of the park owner to bring in modern, larger double-wide manufactured homes. This can affect the exit strategy or resale value of the property, which is a primary concern for commercial mortgage underwriters.
• Fire Safety and Zoning Compliance: Many modern zoning ordinances require specific setbacks (the distance between units). A density of 10 pads per acre often represents an "older" or "grandfathered" park. Lenders will verify that the property is "legally non-conforming" to ensure that if a fire occurred, the owner would be allowed to rebuild at the same density.
• Valuation Metrics: While a higher density can lead to higher gross potential income per acre, it may also lead to higher expense ratios due to the close proximity of tenants and increased wear and tear on common areas.

From a commercial mortgage perspective, different loan products have varying tolerances for density. For example, Agency Lenders (such as Fannie Mae or Freddie Mac) typically prefer a lower density of 5 to 8 pads per acre. A 10-pad density may require a waiver or result in slightly more conservative loan-to-value (LTV) ratios. Conversely, bridge lenders or CMBS (Commercial Mortgage-Backed Securities) lenders may be more flexible with 10-pad density, provided the property shows strong historical occupancy and physical maintenance.

Ultimately, 10 Pads Unit Density is a benchmark that signals to a lender that the property is maximizing its land use, which can be a strength for cash flow but a point of due diligence regarding physical space, safety, and future modernization.