With only a 1 percent decrease in its units owned in 2012, it’s no surprise that Boston Capital retained its No. 1 spot on this year’s Top 50 Owners list, with 155,521 units owned last year. The Boston-based low-income housing tax credit investor purchased interests in more than 6,000 units and sold more than 8,000 last year.
Still, by raising about $601 million in equity, and closing deals through two of its debt initiatives—the Boston Capital Long Term Mortgage Fund (a fixed-rate, forward permanent financing fund) and the Boston Capital Intermediate Term Income Fund (a construction loan fund)—the company remains an affordable housing force all across the country.
But the Top 50’s status quo was upset by the notable rise of El Paso, Texas–based Hunt Cos., which jumped to the second spot from No. 7 last year. The firm recorded the largest increase among any of the top 10 owners, at 25 percent. Hunt added more than 29,000 units in 2012, mostly as a result of its acquisition of Capmark Financial Group’s affordable housing portfolio, a staged transaction that was inked toward the end of 2011.
Hunt also started about 1,000 units last year (with an additional 750 units slated for this year), completed 151 full-scale unit renovations, and entered high-growth markets such as Dallas, Houston, and Austin, Texas.
Large-scale acquisitions were at the heart of this year’s ownership increases, and it wasn’t just the biggest of the big, such as Equity Residential and AvalonBay, that made noise last year.
Norfolk, Va.–based Harbor Group International didn’t even make the cut on last year’s rankings, but it grabbed the No. 39 spot this year through some opportunistic financial engineering. The company boasts a killer combination of good lender relationships, economic acumen, and intestinal fortitude, which help it achieve superior returns via value-added deals found through management or capital upgrades.
“We’re very good at dealing with the loan assumption process where others might not want to deal with it,” says Robert Friedman, president of Harbor Group.
Over the past 24 months, Harbor has purchased six portfolios ranging from 1,200 to 3,500 units. Last August, it paid $130.5 million for a four-property, 1,593-unit portfolio in Nashville, Tenn., with plans to pump in an additional $2,900 a unit in upgrades. And in June, it acquired 1,218 units in a three-property deal in Florida, with plans to invest nearly $5 million, or $4,000 per unit, in value-add improvements.
The company prides itself on its opportunistic drive, offering certainty of execution and a quick contractual turnaround. “If I get a call today that there’s a portfolio in Florida we might be interested in, there’s a good chance I’m going to be down there tomorrow morning,” Friedman says.
Harbor also participated in making preferred and mezzanine loans on multifamily portfolios last year, as it executed four large transactions in diverse markets including St. Louis and New York City. And Harbor has also been helped out by its international assets, with overseas investments in Europe and Israel making up about 15 percent of its equity.
“Our philosophy has been diversification of markets, of product type, and investors,” Friedman adds. “As we’ve continued to grow, we’ve added new markets, new investors. That’s been a natural progression.”
A REIT Solution
Salt Lake City–based Cottonwood Residential quietly made a sudden splash into this year’s rankings. At the end of 2012, the company owned 18,364 units, a steady 237 percent growth in its portfolio since the company owned about 6,000 units four years ago. That growth landed Cottonwood at No. 48 on the Top 50 Owners list. The market-rate owner and manager entered the Florida market recently and has quickly expanded its portfolio.
“We provided a solution by creating a REIT,” says Chad Christensen, president at Cottonwood. The REIT created in 2008 gave tenants and common investors the opportunity to exchange their direct ownership of a property for ownership in the REIT in a tax-free manner. “This gave [participants] diversification and stabilization of their distribution. It solved a lot of problems inherent in an ownership structure. It was also partially responsible for our multifamily management growth,” Christensen says.
Also different from other years was Cottonwood’s purchase of management businesses. The firm closed on a large equity infusion in 2011 that created an opportunity to expand its business. In the past year, the firm successfully transitioned 76 properties into the Cottonwood portfolio, most recently a large, 26-property deal.
“We’re buying quite a bit,” Christensen says. “We’re buying assets, we’ll grow organically … you’ll see us grow over the next several years.”
Plymouth, Minn.–based Dominium also made the list, ranking No. 44 with 20,195 affordable, market-rate, and senior housing units. The company purchased more than 4,000 units in 2012, entering markets in Florida and Mississippi after leaving North Dakota.
Part of its growth can be chalked up to last year’s buyout of Dominium’s co-founders, completing a successful generational transfer of the company. It also took over fee management of a portfolio that includes more than 2,000 units—a portfolio in which Dominium has slowly invested as an owner, as well.
Dominium doesn’t plan to slow down and is looking at adding another 4,000 units this year through a combination of general partner interest acquisition, fee simple acquisitions, and new construction.
For its part, Harbor Group plans to add to its portfolio as well, even though cap rates are reaching historic lows and good deals are harder and harder to find. “The appetite is there,” Harbor Group’s Friedman says. “The resources are there. It’s more challenging to find deals in today’s environment; it just means we need to work that much harder.”