It's good to be an apartment developer again. Rental builders across the country breathed a collective sigh of relief last year as the once red-hot condo market began to cool. They took advantage of the long-awaited marketplace shift and broke ground on a large number of rental units in 2006. One such trail-blazer: United Dominion Realty Trust, which jumped from the No. 38 spot in '05 to the No. 5 spot last year and expanded its development pipeline (including apartment renovations) to more than 15,000 units with a budgeted cost of more than $2.2 billion.

The Richmond, Va.-based REIT attributes its significant building boom to a well-planned growth strategy. “In late '04, the fundamentals of the apartment industry in the long range looked very good to us so in early '05 we started philosophically looking to ramp up our development pipeline,” says Mark Wallis, senior executive vice president. The tactic certainly worked: the company broke ground on approximately 4,300 units last year (interestingly, a mix of for-sale and rental units) compared to 1,335 in 2005. Following similar strategies, fellow public REITs Camden Property Trust and Equity Residential scaled the charts with Camden moving from No. 49 to No. 21 and Equity landing a new spot on the list.

Several condo develop ers, on the other hand, fell few notches on the list. noticeably, The Related Group lost its No. 1 spot, plummeting to No. 20. The company attributes its nearly 57 percent revenue decrease not to the condo slowdown but to less available inventory in '06 compared to '05. “In 2005 almost every project we launched sold out,” says Jorge Perez, chairman and CEO of The Related Group. The company did protect itself against market conditions by expanding its marketing efforts outside the United States and launching an overseas subsidiary called Related International with its first project planned for Puerto Vallarta, Mexico. The company plans to invest more than $1 billion in Mexican real estate over the next two years.

Despite reduced competition from big condo players like The Related Group, getting the shovel in the ground still proved challenging for apartment developers last Building costs decreased only slightly from '05, and land prices continued to soar even as competition for land lessened. “Finding the appropriate land to build on at the right cost is our biggest obstacle,” says Mike Godwin, president and CEO o f Valdosta, Ga.-based Ambling Cos., which jumped 20 spots on the Top 50 list. “Land owners haven't shown the willingness to negotiate and to bring the prices down thus far.”

So companies found creative ways to get deals done, such as tackling public-private joint ventures and expanding into new niches, particularly affordable housing which a growing number of locales now require in new market-rate communities. About 700 of Ambling's 2,789 rental starts were for workforce housing, thanks in part to a relatively new Georgia state tax credit which helps finance these deals. Godwin anticipates that many of those units will be filled by former homeowners who can't keep up with their monthly mortgage payments. “As long as interest rates and construction costs stay within reason, there will absolutely be more workforce housing done going forward,” says Godwin.

Executives anticipate apartment development in general to stay strong in '07. “There's no doubt that '07 is not the year to be a condo developer,” says Greg Mutz, CEO of Chicago-based AMLI Residential. And developers do expect land prices to eventually stabilize. Ultimately as sellers realize that the market for condos is gone and there are fewer buyers in the market, land prices will stop escalating, believes Ric Campo, CEO and chairman of the board of Houston-based Camden Property Trust. Talk about a long-awaited development.

SMART STARTS: United Dominion Realty Trusts' Mark Wallis (left) and Mark Culwell scope out new development opportunities for the REIT, which landed the No. 5 spot on the Top 50 list with 4,328 starts.
SMART STARTS: United Dominion Realty Trusts' Mark Wallis (left) and Mark Culwell scope out new development opportunities for the REIT, which landed the No. 5 spot on the Top 50 list with 4,328 starts.