An expected spate of initial public offerings (IPOs) from apartment real estate investment trusts (REITs) has been sluggish, despite capital availability in the equity markets and investor interest in liquidity. The reason? A continued choke hold on the volume of multifamily dispositions already subjected to extreme bid pressure from existing traded and non-traded REITs and private companies with established acquisition funds. 

“I had been expecting a major IPO wave similar to what we saw in the 1990s,” says Brad Case, economist for the National Association of Real Estate Investment Trusts (NAREIT). “The conditions are good for an IPO now in terms of access to equity markets, but the major inhibition has been the lack of properties to invest in. Typically in the REIT market, we don’t see investment mangers grabbing capital and then looking for something to spend it on. Instead they wait for investment opportunities and then do the equity offering.”

Several multifamily companies have launched or have intimated plans to launch apartment REIT IPOs this year, most notably El Paso, Texas-based Verde Apartments and Chicago-based Legacy Partners Residential Realty. Legacy partnered with Newport Beach, Calif.-based KBS Capital Advisors to announce an IPO on March 15 of the KBS Legacy Partners Apartment REIT, which will offer up to 200 million shares of common stock in a primary offering at a maximum price of $10 per share, using the proceeds to acquire and operate well-positioned apartment real estate that is producing rental income, according to a KBS press release. Legacy Partners Residential Realty owners were unavailable for comment on the status of the IPO. Verde Apartment officials likewise did not return calls for comment on any pending IPO from the company.

But with relatively few deals trading—and what deal flow there is largely regulated to established REIT players—new outfits looking for a 2010 IPO might have to push to 2011 as more (and higher-quality) assets hit the market. “Just in the past six months we have seen the CMBS market starting to get on its feet; bank recovery is beginning to take hold; and extend-and-pretend practices are winding down,” Case says. “Once the regulatory agencies [abandon extensions], then the debt maturities that come up will be binding and force a lot of properties onto the market.”

Highlands Ranch, Colo.-based UDR president and CEO Tom Toomey, for one, would welcome a greater REIT peer group in the apartment sector. “We’re not afraid of anything that creates more competition,” Toomey says, noting a drop over the past two decades in the number of apartment REITs, from 34 to about 10. “The publics are going to grow, or public capitalization of apartments is going to grow. We need either more companies or bigger companies. Either option helps to create bigger pools of investment opportunities and attract more capital to the space.”

Should a wave of IPOs break, Case anticipates that investor interest will swing towards highly liquid, publicly traded apartment REITs rather than their non-traded brethren. Nevertheless, non-traded multifamily REITs similar to the KBS Legacy Partners Apartment REIT—including Dallas-based Behringer Harvard’s Multifamily REIT I and the Santa Ana, Calif.-based Grubb & Ellis Apartment REIT—have shown recent success relative to the market when it comes to closing deals and building a portfolio, and it will likely take a couple of traded apartment REIT IPOs to hit the ground running before a definitive comparison can be made.