The large institutional players that spent much of the past five years amassing apartment units didn’t just slow down in 2008, they systematically dismantled their portfolios, chopping off poor performing assets in weaker markets at sizeable speed.
The larger companies—specifically REITS and private firms operating pension funds—are net sellers today, says Ric Campo, CEO of Houston-based Camden Property Trust, which sold off about 1 percent of its portfolio in ’08 and moved down three spots on the MFE Top 50 list. “The REITs have all of these unencumbered properties,” Campo says. “That allows them to not be constrained with legacy debt.”
The amount of units shed varied greatly by company. Debt-laden Denver-based AIMCO sold 42 percent of its portfolio in 2008 dropping from the No. 1 spot to No. 5 on the list, while its neighbor, Highlands Ranch, Colo.-based UDR, sold 33 percent of its portfolio moving from No. 9 in ’07 to No. 18 in ’08. Meanwhile, Chicago-based Equity Residential (No. 4) and San Francisco-based BRE Properties (No. 46) sold about 3 percent of their units.
REITs used the proceeds from these sales to pay down debt, buy back shares, and, at times, purchase more attractive properties in better locations. “It’s easy for us to sell a property with no mortgage, generate cash, and be in a smaller balance sheet position,” Campo says. “It’s harder for the private guys, primarily because they have unencumbered assets. They won’t prune their portfolios the way we do.”
A handful of large private apartment companies, however, did prune their portfolios. For instance, Phoenix-based Picerne Real Estate Group (No. 25) sold 2 percent of its units while Archstone (No. 9) in Englewood, Colo., sold off roughly 3 percent of its portfolio. Most privates, such as Picerne, completed their sales in the first part of the year before cap rates began to escalate. But other private firms, such as Seattle-based Pinnacle (No. 7) and Farmington Hills, Mich.-based Edward Rose Building Enterprise (No. 12), added units—3,166 and 941 units, respectively. Pinnacle both bought and built properties, while Edward Rose also added new units through construction.
In the second half of ’09, owners who add significant units to their portfolios will be those too small to crack MFE’s Top 50 list. “The only buyers in the market today are the private capital mom-and-pops and small private operators that have 5,000 or 10,000 units,” Campo says. “They tend to buy from institutions during times like this.”
It’s likely that Top 50 owners won’t start adding to their portfolios until 2010. “I’m interested in doing acquisitions, but in the market I’m interested in, we’re six to nine months early,” says David Picerne, president and CEO of Picerne.
Sentinel Real Estate Corp. (No. 26) Despite an economy in the worst shape it’s been in for decades, Sentinel Real Estate Corp. had a good pace of transactional activity in 2008. The New York-based firm entered a new market in 2008—Garden City, N.Y.—and left Ann Arbor, Mich.; Bristol, Conn.; Detroit; and Norfolk, Va. All told, the firm bought 1,770 units and sold 4,329 last year.
Sentinel, which owned and managed 38,000 units in ’08, renovated 54 units in the Northeast and West. It anticipates renovating an additional 193 units by the end of 2009.
Sentinel’s other goals include focusing on property performance and asset management; expanding and developing investment products; and continuing to expand offshore marketing and development activities.—Tanya Y. Coachman
The Richman Group
Affordable Housing Corp. (No. 6) The Richman Group Affordable Housing Corp., a Greenwich, Conn.-based developer, owner, and manager operating throughout the country, flies under the radar compared to its larger apartment owner peers. But the company has a portfolio to be reckoned with: In 2008, The Richman Group owned 85,197 units and managed 12,116, landing it among the Top 10 largest apartment owners in the U.S.
In 2008, the firm started affordable, market-rate, and independent living communities in markets across the country. The Richman Group also renovated 843 of its properties. One major accomplishment was the February 2009 opening of the Croton Heights Apartments, a new, $23 million, 60-unit affordable rental community in Yonkers, N.Y., according to the New York Real Estate Journal.
The Richman Group has eight regional offices from north to south and coast to coast and serves communities in 49 of the 50 states and three U.S. territories.—Tanya Y. Coachman
Security Properties (No. 43) Security Properties had a busy 2008. The Seattle-based firm bought 200 units but sold 1,000 last year. All told, in ’08 the firm owned 23,000 units and renovated 1,500 units in the Southwest, Midwest, and West; it projects 1,000 renovations for ’09.
California was the country’s top market for starts. Security exited the Spokane, Wash., market in ’08, but says the year had a bright side as the firm “accomplished monetization of two market-rate and five affordable assets totaling $90 million; achieved a same-store NOI growth of 13 percent for its market-rate portfolio; and began construction of a 300-unit mixed-use development in Seattle.” T.Y.C.
Its goals for ’09 are to monetize additional affordable assets to generate about $20 million as well as secure future capital sourcing by launching opportunistic discretionary funds. The company also plans to grow its recently launched asset-based lending business.
“In the current environment of frozen credit markets and the economic downturn, the challenge will be operating current multifamily properties as residents are affected by the recession and mounting job losses,” the company says. “However, this will create opportunities for opportunistic and distressed investment for owners who have the expertise and capital when others are struggling.” —Tanya Y. Coachman