TRAMMELL CROW RESIDENTIAL, the country's largest builder of multifamily properties, building 10,936 units in 2007, made its name in development. In fact, in 30 years, the Atlanta-based company has done very few acquisitions. But times are changing. “We're looking at acquisitions again,” says Ron Terwilliger, chairman and CEO of the firm.

He isn't alone. “We do think there will be buying opportunities in 2009,” says Jon Bell, co-managing partner at Bell Partners, an apartment owner in Greensboro, N.C., with 57,400 units. “We have capital now in our Bell Fund III to have powder dry for when we think opportunities are ripe.”

Indeed, it seems that every established—and sometimes unestablished—multifamily owner, developer, and investor is lined up to buy assets in the next few years. And there may well be opportunity, considering the number of multifamily firms floundering under the weight of high-leverage (some at 90 percent loan to value) construction loans taken out in the height of the real estate frenzy.

“You hear a lot of noise about the bad paper in single-family,” says Ray Hutchinson, executive vice president of multifamily for Colonial Properties Trust, a Birmingham, Ala.-based REIT with 39,104 units. “That's nothing like what will come back in commercial paper.”

But with so many buyers lined up, the question is when to jump in. Do you wait until the bottom? Or pounce when the numbers work for you—regardless of whether you could lose some value? Already, companies such as Berkshire Property Advisors, a Boston-based apartment owner with 30,000 units, and Northland Investment Corp., a multifamily owner in Newton, Mass., with 16,671 units, have scooped up distressed debt.

In some cases, it isn't a bad time to buy. The Connor Group, a Dayton, Ohio-based apartment owner and manager with more than 14,000 units, is in the process of buying four properties. “In our 17-year history, today is the best buying opportunity we've seen,” says Larry Connor, CEO of the company. “If we get the right opportunity, it's a great product, a great location, and we believe we can significantly improve the bottom line, we'll buy it today.”

Others say this may not be the best time to buy ... just yet. “It's still a little early if you're looking for distressed assets,” Terwilliger says. “Right now, the people who don't have to sell just aren't selling. The good buys are going to come some time into next year when people will be forced to sell.”

If you're sitting around waiting for the bottom, you could see some of those deals pass you by. Instead, most apartment buyers think you should jump in, so long as the numbers work for you. “We build in a little more cushion than we would have in the best of times,” says Michael Stewart, CEO of Pacific Property Assets, an Irvine, Calif.-based apartment owner with 2,230 units. “Now, we want another 5 percent or 10 percent just in case our numbers aren't there or the market isn't as good.”

Connor began changing his underwriting in 2007, pushing his cap rates up 100 to 150 basis points. David D. Fitch, president and CEO of Atlanta-based Gables Residential, which manages 35,000 apartment homes and owns nearly 17,000 units, will underwrite for the recovery. “Take a position on when a recovery may occur and underwrite to that conclusion,” he says.

Michael Stewart
Michael Stewart


While most prospective apartment buyers are sitting on the sidelines, Michael Stewart, CEO of Pacific Property Assets, is jumping right into this uncertain market. Pacific, an Irvine, Calif.-based real estate investment company with a 48-property, 2,230-unit portfolio, has bought 78 units in two Phoenix properties in the past three months and at the end of 2008 was closing in on two properties in Mesa, Ariz., totaling 177 units.

Though financing is difficult, Stewart has found various sources to tap into for capital. Pacific will try to buy underlying debt at a discount from the current owner; use 221 (d)(4) HUD loan program funds (though the process can take almost a year, the agency will provide 90 percent of the acquisition and rehab money); and has even created a public reporting company to raise $10 million in lender capital that can then be loaned to Pacific.