Industry Update: Why Utility Risk Is Back in Focus for 2026

In 2021 and 2022, capital was cheap and yield-hungry buyers were willing to accept almost any level of uncertainty. Infrastructure concerns got footnoted, not priced. That era is over. In 2026, utility risk has returned as one of the primary underwriting concerns for both buyers and lenders — and deals that do not address it head-on are dying in due diligence at an accelerating rate.

This is not a random trend. It is the result of years of deferred decisions catching up to an asset class that grew faster than its infrastructure discipline could support. Understanding why this is happening — and what it means for your next acquisition — is essential for anyone actively looking at deals right now.

The Origins of the Current Risk Environment

The MHP sector's rapid capital inflow between 2019 and 2023 created acquisition pressure that outpaced due diligence discipline. Parks were changing hands quickly, often with limited engineering inspection, because buyers did not want to lose deals to faster competitors. Speed became a competitive advantage, and thoroughness paid a price.

Those shortcuts created a predictable outcome: a growing inventory of parks with known infrastructure problems that were never properly priced into the acquisition. Now, several years later, the bills are arriving. Lenders have closed deals on parks that later required six-figure infrastructure remediation. Regulators in multiple states have increased inspection frequency and enforcement for private utility systems. Insurance carriers have raised rates significantly for parks with legacy sewer infrastructure.

The market is not just reacting to current conditions — it is correcting for an extended period of underpriced risk.

Three Categories of Utility Risk in 2026

Not all utility risk is the same. Understanding the distinctions matters both for underwriting accuracy and for how you communicate risk to lenders and partners.

1. Regulatory Risk: Private well and sewer systems face increasing state-level regulatory scrutiny. Many states now require annual testing, licensed operators, and documented emergency response plans. Non-compliance creates fines, forced remediation timelines, and in extreme cases, park closure orders.
2. Capital Risk: The replacement cost of private utility infrastructure has increased dramatically since 2020. A well pump replacement that cost $8,000 in 2019 may cost $14,000 today. Full lagoon replacement projects that were once $200,000 are now frequently $350,000 or more. Budget assumptions based on pre-2022 costs are systematically underestimating exposure.
3. Lender Risk: Community banks and regional lenders are tightening collateral requirements around parks with private systems. Some are requiring environmental indemnity agreements, higher reserves, or refusing to lend at all on parks with private sewer.

What Lenders Are Now Requiring

The change in lender behavior is rational and predictable. After originating loans on parks where the borrower's infrastructure assumptions proved optimistic, risk departments have adapted their approval standards accordingly.

Several concrete changes are now standard at many lenders:

• Requiring a licensed engineer's report on private utility systems prior to loan commitment — not during diligence, but as a condition of the commitment letter.
• Requiring borrowers to capitalize reserves for infrastructure before closing, not post-close from operating cash flow.
• Sizing loans based on as-is income rather than stabilized pro formas when material infrastructure work is pending.
• Adding infrastructure covenants to loan documents, with default triggers tied to deferred maintenance milestones.

For buyers, this means that being caught flat-footed on utility questions during the lending process is no longer just an inconvenience — it can kill your deal entirely after you have already spent money on inspections, legal fees, and earnest money at risk.

How to Underwrite Utility Risk the Right Way

The discipline required is not complicated, but it requires doing the work before you make an offer — not after. When evaluating a park's utility position, work through these steps in sequence:

1. Identify the system type (municipal vs. private) for both water and sewer.
2. Obtain the last three years of utility bills and any regulatory correspondence the seller has received.
3. Request copies of any prior engineering reports or system assessments that exist.
4. Estimate replacement costs based on current market pricing, not historical norms or seller-provided numbers.
5. Build a reserve line into your pro forma that reflects realistic annual maintenance, not an aspirational minimum.
6. Budget for a licensed engineering inspection as a standard line item in your due diligence budget — not an optional expense.

The reserve line is where most buyers get conservative, then get punished. A private well serving 50 lots should be reserved at a minimum of $200–300 per lot per year. A private sewer system should be reserved at $400–600 per lot per year or more, depending on age and documented condition. These numbers hurt your modeled NOI — but they reflect reality, and experienced lenders and buyers know it.

”Infrastructure problems do not appear after you close. They reveal themselves. The question is only whether you were paying attention before you signed.”

The Sequencing Problem After Acquisition

Even buyers who underwrite utility risk correctly often make a post-close sequencing mistake: they prioritize rent increases and unit infill before addressing infrastructure, because the former shows up on the P&L immediately while the latter is a deferred benefit with no visible upside.

This sequencing creates a specific compounding problem. Higher lot rents attract scrutiny from local regulators and tenants. If your private sewer system then has a visible failure during that period, you are simultaneously facing regulatory action, tenant PR risk, and an expensive repair — all while trying to execute a rent growth plan that now looks tone-deaf.

The operators who consistently execute well reverse this sequencing. They address structural infrastructure issues in the first 6–12 months post-close, before they push rents aggressively. The cash cost is real, but the risk reduction is greater, and the operational story becomes far easier to tell to lenders on the refinance.

What This Means for Buyers Right Now

The practical implications for anyone evaluating parks in 2026 are clear and actionable:

• Expect lenders to ask detailed questions about utility systems early in the process. Have your answers — and your engineering report — prepared before you submit a loan application.
• Price infrastructure risk into your offer, not into your post-close hope. Sellers know their systems better than any buyer. If they are not disclosing problems proactively, the problems are probably disclosed somewhere in the details.
• Use infrastructure quality as a deal filter, not just a due diligence item. Parks with clean municipal water and sewer are genuinely worth a premium in this environment. Price accordingly when you are the buyer and when you are the seller.
• Budget for engineering reports as a standard cost of doing business. A $3,000–5,000 engineering report on a private system is the cheapest insurance you will ever buy against a six-figure surprise.

The parks that trade at the best values in this environment are often the ones where buyers have correctly priced infrastructure risk and have the operational capability to execute remediation efficiently. That is an advantage available to operators with the discipline to do the work upfront — and it is increasingly the difference between investors who build durable portfolios and those who learn expensive lessons.