Denver-based Apartment Investment and Management Co. (AIMCO) isn't just scaling back its redevelopment activities. It's also scaling back its management team.

This week, the company announced that Tom Herzog, who has served as the REIT's chief financial officer since 2005, was stepping down. As part of the same restructuring, AIMCO named Tim Beaudin and David Robertson as co-presidents of the company. Robertson will assume CFO responsibilities, in addition to continuing to serve as chief investment officer. Beaudin will also continue in his role as chief operating officer.

Cutting Costs

Though AIMCO has a high debt level (Colonial Property Trust, which has similar levels of debt, jettisoned their president and CFO Weston M. Andress in January) and reported lower-than-expected fourth quarter results, Herzog says neither of those factors played a part in AIMCO's decision. The move had been in the making for a while, Herzog adds. "Weeks ago, [AIMCO CEO] Terry [Considine] had discussions about reductions in [general and administrative overhead]," he explains. "The goal was to reduce our G&A by about a third because we were selling an awful lot of assets."

Indeed, the company sold $2.6 billion in real estate assets in 2008 and is expected to sell another $2 billion over the next two years

Unfortunately, Herzog says, those reductions couldn't be achieved with lower-level cuts. "We have to be looking at folks at the top levels," he says. "That's why I said, 'One of the things you have to consider is merging my role with David's. We have a very strong finance team under me. Those folks will be able to step up, and if we merge out high-level positions, we save a lot of money with one guy."

And that's exactly what is happening. Robertson will assume CFO responsibilities effective March 1, 2009. Herzog will continue in an advisory capacity after he departs on March 1, 2009, and will receive a cash separation payment of $1.5 million. Roberston's experience in finance (he helped shepherd AIMCO through its move to the public sector in the early '90s) coupled with the slowdown in acquisitions will likely be a strength in the CFO role.

Wall Street Reacts

Analysts, however, think Herzog's departure will be a big loss for the company. In a way, he is a victim of his own success, says Andrew J. McCulloch, an analyst for Green Street Advisors, a Newport Beach, Calif.-based REIT consulting and research firm.

"I think it is also important to recognize that the move is only possible because Tom was so successful at streamlining the accounting and reporting functions within AIMCO, something he should be commended for," McCulloch says. "In addition, David has the appropriate lieutenants in place to continue the disposition program as he takes on some of the additional responsibilities that come with the CFO role."

But that doesn't mean Herzog won't be missed. "Tom brought balance, structure, and discipline to the finance and accounting areas of AIMCO, which, prior to his arrival, were problem areas for the company," McCulloch says.

Others expressed surprise when the announcement came out. "We are surprised by this move," said analysts at Keefe, Bruyette and Woods in New York, in a report released after the announcement. "We viewed Mr. Herzog's strong accounting background as a strength for the company."

Some observers close to the situation have speculated that the shift in power may be linked to succession issues. Herzog may have lost out in a three-way jockeying for the heir apparent role to Considine's position as chairman and CEO. Now, Beaudin and Robertson seem to be the frontrunners for the promotion down the line.

This is the second time in six months that AIMCO has announced senior-level changes. In October, Beaudin took over the COO role from Jeff Adler, who left to start an advisory firm. "Tom made vast improvements to the quality and timeliness of accounting and financial planning information and is a man of tremendous integrity," Adler says. "I think his counsel will be missed. He's worked really, really hard over the past five years."

The analysts at Keefe, Bruyette and Woods don't think Wall Street will react positively to these moves. According to the report, "risks associated with these changes are magnified in our view, given the challenging fundamental and credit market environment."