Greater than 10 pads Unit Density

Definition of Greater than 10 Pads Unit Density

In the context of commercial mortgages for Manufactured Housing Communities (MHC) and mobile home parks, "Greater than 10 pads Unit Density" refers to a property configuration where there are more than ten individual home sites (pads) per acre of land. This metric is used by underwriters to measure the physical concentration of units and the efficiency of land usage relative to the total acreage of the park.

Detailed Description and Underwriting Significance

Unit density is a critical factor in the risk assessment process for commercial real estate financing. While higher density can lead to higher gross potential rent per acre, it also presents unique challenges that lenders must account for during the due diligence phase. When a property exceeds a density of 10 pads per acre, it is generally classified as a high-density community.

The following factors are typically evaluated when a commercial mortgage application involves a property with greater than 10 pads per acre:

• Fire Safety and Separation: High-density parks often have narrower "setbacks" (the distance between individual units). Lenders and insurance companies closely examine these distances to ensure they meet local fire codes and mitigate the risk of fire spreading rapidly between closely packed homes.
• Infrastructure and Utility Load: Increased density places a heavier burden on the property’s infrastructure. Lenders will pay particular attention to the capacity of water lines, sewer systems, and electrical grids to ensure they can handle the high volume of residents without frequent failure.
• Parking and Accessibility: In parks with more than 10 pads per acre, space for off-street parking and emergency vehicle access (such as fire trucks and ambulances) is often limited. Underwriters may require a detailed site plan to confirm that the density does not impede safety or violate municipal zoning ordinances.
• Marketability and Tenant Quality: Higher density can sometimes be associated with older, "legacy" parks. Lenders compare the property against modern standards (which typically favor 5 to 8 pads per acre) to determine if the high density negatively impacts the long-term valuation or the park's ability to attract stable, long-term tenants.

Financing Implications for High-Density Parks

When a borrower seeks a commercial mortgage for a park with greater than 10 pads per acre, it may influence the Loan-to-Value (LTV) ratio and the interest rate. Agency lenders, such as Fannie Mae and Freddie Mac, have specific "Tier" structures that may require a waiver or an exception for densities that significantly exceed the market norm.

• Lower Leverage: To offset the perceived physical risks of high-density living, a lender might reduce the maximum LTV, requiring the borrower to provide a larger down payment.
• Increased Replacement Reserves: Lenders may require a higher annual contribution to replacement reserves to account for the accelerated wear and tear on the common areas and infrastructure caused by a higher population density.
• Zoning Compliance: If the current density exceeds modern zoning laws (making the property "legally non-conforming"), lenders will require Law and Ordinance insurance to protect their investment in the event the park is damaged and cannot be rebuilt to its original density.