The usual cast of characters topped this year’s MFE Top 50 Owners list, but the largest owners didn’t clock in quite as many units as they did in 2008.
The top four companies had fewer units in 2009. Boston-based Boston Capital (No. 1) moved from 166,496 units to 162,677, while SunAmerica Affordable Housing Partners (No. 2) moved from 152,315 units to 147,087 units. The two REITs, busy moving out of less desirable markets, were sellers, too. Chicago-based Equity Residential (No. 3) moved from 147,244 units to 137,007, while Denver-based AIMCO (No. 5) went from 114,782 units to 92,491 units. (The usual front-runners—MMA Financial, which ranked No. 1 on last year’s list, and Stamford, Conn.-based GE Real Estate, which landed the No. 8 spot last year, declined to participate in this year’s survey.)
“For us, like many other players in the market-rate business, 2009 was a year for minding our knitting and taking care of assets,” says Mark Dunne, managing director for Boston Capital Real Estate Partners, a division of Boston Capital.
So, if the top owners shed units, why weren’t others on the list able to claim some of these top spots? The largest owners led by too wide a margin. For instance, the gap on last year’s Top 50 Owners list between AIMCO and the sixth place firm, Greenwich, Conn.-based The Richman Group Affordable Housing Corp., was nearly 30,000 units. That gap shrunk to little more than 2,000 units this year. But there was another reason—the transaction market dried up in 2009, limiting most firms’ ability to add units.
“A year ago, most of the public REITs were saying they wouldn’t see transactional volume in 2009 because we were still in a period with a declining rent curve,” says Ed Lange, executive vice president and chief operating officer at San Francisco-based BRE Properties, which came in at No. 50 on the list with 23,109 units.
This year, though, the REITs have started to buy alongside Equity, with Rochester, N.Y.-based Home Properties (No. 31 with 35,797 units), Palo Alto, Calif.-based Essex Property Trust (No. 46 with 27,248 units), and BRE all making purchases.
Equity CEO David Neithercut expects the buying spree to continue in 2010—possibly making REITs larger players on next year’s list. “I think that the REITs have access to capital today that’s a little more attractively priced, as opposed to the private guys,” he says. “I’d be surprised if the public side of the equations didn’t aggregate more units this year, just because of their superior access to capital. This happens coming out of downturns. A lot of the private guys have legacy issues that preempt them from aggregating assets and taking advantage of some kind of improvement [in the market].”
Still, Lange says most REIT transactions are of a smaller variety, meaning they won’t have a huge impact on next year’s list. He also doesn’t discount other buyers. With debt availability from Fannie Mae and Freddie Mac, Lange thinks private equity could lower its internal rate of return (IRR) and private owners (without debt issues) could be buyers.
Dunne can see overseas investors, REITs, private owners, and institutional owners increasing allocations to apartments this year—with each emphasizing and/or being more competitive in certain product and market types. “Ownership in apartments will generally become more attractive to institutional investors,” he says. “Ownership by REITs, funds, and endowments will continue to grow for premium assets in 24-hour markets—and with attractive financing from Fannie Mae and Freddie Mac and even some insurance companies, private owners will continue to be active, particularly for commodity assets in secondary markets.”
Right now, Lange is seeing a lot of closed-end funds (which must deploy capital) and non-traded REITs as the heavy buyers. Most of them don’t have the scale to be serious challengers for the Top 50 list, though. Overall, he doesn’t see the seismic changes in the apartment ownership foundation that he saw after the early ’90s commercial meltdown.
“The early and mid-’90s saw a lot of new names and new companies created,” Lange says. “I think that’s the one piece we’re not seeing yet. Even if the distressed selling is not there at the magnitude they [private buyers] would like, if you can get to an IRR [they like], does it make sense to form new platforms and buy some of these assets? That’s been the missing piece [in this downturn].”
If private equity steps up or if private operators go public, new, bigger platforms could eventually make the Top 50 Owners list. But until then? It looks like the same old players will be back again next year. [M]