Every May, thousands of horse-racing fans head to Churchill Downs for the Kentucky Derby. In January, thousands of builders and bankers head to a massive venue across the street from the racetrack – the Kentucky Exposition Center – to talk houses rather than horses at the Louisville Manufactured Housing Show.
This year’s iteration of the marquee U.S. event for companies that build homes in factories, then assemble them on site was a coming-out party for ECN Capital Corp., which lends to home buyers. The Toronto-based company spent the past year repositioning itself as a champion of affordable housing by striking a partnership in September with Skyline Champion Corp. that saw the Troy, Mich.-based home builder, invest $185-million in ECN in return for a 19.8-per-cent ownership stake.
“Manufactured homes can be part of the solution to housing crisis,” said Steven Hudson, ECN chief executive officer, in an interview from the Louisville show. He said recent changes to Canadian and U.S. regulations, including President Joe Biden’s 2022 housing supply action plan, are making it easier for customers to borrow money for manufactured homes.
The Louisville show, which drew representatives of over 1,000 companies, showcased an industry that has gone from making down-market trailers to building multi-floor houses that would blend into any suburban neighbourhood. There are 22 million Americans living in manufactured homes, according to Skyline’s data.
Asset managers Blackstone Inc. and Carlyle Group Inc. are backing ECN’s expansion plans by acquiring the bulk of the loans made by the Canadian company, which earns a fee for originating and servicing the debt. In August, Blackstone committed $1.14-billion to buying manufactured housing loans from ECN’s Triad Financial Services division.
Institutions are investing in this corner of the credit market in part because default rates remain low despite interest-rate hikes over the past year, Mr. Hudson said: “Our customers buy homes that they can afford.”
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Triad has been lending to home buyers since 1959. ECN acquired the company in 2017 for $125-million. As part of the parent company’s strategic shift, Toronto Stock Exchange-listed ECN is changing its name to Triad Financial Services Corp.
ECN’s new partner, Skyline, is North America’s second-largest manufactured home producer, behind Berkshire Hathaway Inc.-owned Clayton Homes. In a recent press release, Skyline CEO Mark Yost said the company invested in ECN “to help streamline the homebuying experience” for customers.
Rising real estate prices mean 60 per cent of the population can no longer afford a traditional home, according to Skyline’s research. The company sells roughly half its homes to millennials, and 25 per cent to baby boomers.
Skyline homes cost an average of US$98,000, and buying or leasing a lot will add to that price. The company sold 26,000 homes last year, built at five factories in Western Canada and 42 U.S. plants, and its revenues rose 17 per cent annually over the past five years. It offers homes in Canada under two brands: Moduline and SRI Homes.
Skyline agreed to keep its investment in ECN at the current 19.8-per-cent level for the next two years. In a recent report, analyst Geoffrey Kwan at RBC Capital Markets said “bigger picture, we can’t help but wonder whether ECN is positioning itself for a potential sale to Skyline.”
Along with Triad, ECN owns a division that lends to boat and recreational vehicle buyers. Last September, the company said it plans to exit this business after a strategic review that concluded with the Skyline investment. Mr. Kwan said ECN is expected to sell or spin off the boat and RV lender in the first quarter of this year.
ECN’s focus on manufactured home loans comes after the company sold two lending business in the past three years – Service Finance Holdings and Kessler Group – for a total of US$2.2-billion. ECN used half the proceeds to pay its shareholders a $1-billion special dividend.
Mr. Hudson spun out ECN from Element Fleet Management Corp. in 2016 – now one of the world’s largest vehicle finance companies. He founded Element in 2007 by purchasing credit businesses from General Electric Co. Mr. Hudson also launched Newcourt Credit Group in 1984, and sold the company 15 years later to CIT Group for $2.4-billion.
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