Click here to download the 2008 Top 50 index (PDF).
For years, Denver-based Apartment Investment & Management Co. (AIMCO) topped the list of the multifamily industry's biggest owners and managers. It quietly scooped up apartment portfolios and even entire companies, maintaining a low profile all the while. CEO Terry Considine is notorious for shunning the spotlight. He isn't a quote machine, and since the REIT isn't a ground-up builder, you won't see its shiny new high-rises and communities on the cover of magazines.
But that reluctance to be in the spotlight belies the truth: AIMCO has spent the better part of the past few years crafting a plan to carry itself through both good and bad times in the market. In fact, the senior management team of Tim Beaudin, Jeff Adler, and David Robertson has honed a strategy first developed by Considine more than 40 years ago—one that its entire team embraces. The philosophy is simple: Buy upgradeable properties on valuable land near urban areas. As the area grows, the ground appreciates, and AIMCO can quickly and profitably reposition the property, adding even more density.
Recently, more and more of the industry's leading firms have realized that AIMCO's value-add strategy is a wise one. “New development is a major challenge, and getting financing to fund it is a challenge,” says Eric Bolton, chairman and CEO of Mid-America Apartment Communities, a Memphis, Tenn.-based REIT doing quite a bit of redevelopment work.
AIMCO, however, did it first and did it effectively. The companywide formula involves specializing in both the markets it's in and tightening its focus on redevelopment and customer satisfaction within those areas. Each of Considine's three top executives directs a portion of the business—Beaudin handles redevelopment; Robertson guides transactions and asset management; and Adler pilots property management. Together, this team is taking Considine's vision and developing a template by which AIMCO employees across the country can navigate a very volatile time in both residential real estate and the credit markets. Indeed, understanding AIMCO's strategies today and into the future is a clear reflection of the trends shaping the entire industry and its biggest firms.
MORE FROM LESS Driving the changes at AIMCO is a desire to get the right portfolio mix—a move that many in the industry are making. Five years ago, AIMCO owned assets in approximately 100 markets. But the company's leaders decided that was far too many. “We decided to focus on having a market-weighted portfolio that would be focused on the top 20 apartment markets by market value,” Robertson says. “Our view is that [this] will provide the higher risk-adjusted returns.”
Right now, AIMCO has whittled its portfolio geography to about 40 markets. But it has 75 percent of its assets in the top 20 markets. Unlike its public peers, it's not just focusing on the coasts. Its goal is to be in markets where apartments have the highest value. Sure, that includes coastal spots such as Boston, New York City, Philadelphia, Washington, D.C., Florida, and California. But it also includes Atlanta, Chicago, Denver, and Texas.
JPI Cos., a multifamily builder, owner, and manager based in Dallas, has a similar goal, though it's not seeking return potential alone. The company says it is focusing on high-visibility locations in major cities because banks and equity players today have difficulty underwriting deals in non-core markets.
“We're not looking at tertiary cities, and we're not even looking at secondary cities,” says Jim Butz, president and managing partner for JPI East. “We're looking at the top 15 cities in core locations.”
AIMCO recognized the need to tweak its portfolio in the major markets as well. It would like to add to its asset base in the Bay Area, Dallas, Houston, and Boston, while divesting of its assets in the struggling Florida markets. Unfortunately for the REIT, cap rates are rising in supply soaked Florida and the pool of buyers jockeying for new assets has dwindled.
Still, Robertson says he is finding buyers. The company, which routinely sells about $1 billion worth of assets a year, moved 9,068 market-rate units in 2007. Robertson says many institutional buyers have disappeared because they ran out of money and can no longer hit their targeted returns. But those who are leveraged at 65 percent instead of 75 percent or 80 percent can still secure apartments.
“The buyers in the market are a combination of independents, local and regional operations, and institutions,” Robertson says. “They all use some degree of leverage in their acquisitions.” A year ago, that leverage allowed buyers to finance at least 90 percent of a deal. Now, that number is down into the 70 percentiles.
“From a pure financial standpoint for existing product, cash is king,” says Ric Campo, chairman and CEO of Camden Property Trust, a Houston-based apartment REIT. “There's a lot more cash needed to play in the multifamily market. The high-leverage buyer is basically out of business.”
Still, there hasn't been a major repricing of apartments, at least on a national basis—athough in markets such as South Florida, that's a different story. “We haven't seen substantial discounting of existing deals,” David R. Picerne, CEO of Picerne Real Estate Group, an apartment owner and builder based in Phoenix. “But deals are undergoing a lot more scrutiny.”