A couple of years ago, the fee management sector appeared to be dying a slow death. Now, as the economy has turned south, the third-party business is looking up. What happened?

“Part of the trend away from third-party management was that a good economy hid the faults of bad management,” says Pierce Ledbetter, president and CEO of LEDIC Management Group (No. 46), a Memphis, Tenn.-based fee manager. “Now that it’s a bad economy, it’s much easier to see the positive results that a large fee management company can deliver to any owner’s bottom line. That’s what is causing the comeback for the fee manager.”

In 2008, REITs and institutions were forced to sell units due to the down economy, and, as a result, have seen their units under management decline. Denver-based AIMCO sold off 20 percent of its units, moving from No. 1 in 2007 to No. 3 in 2008. UDR, based in Highlands Ranch, Colo., sold off almost a third of its units, moving from No. 10 in ’07 to No. 18 in ’08. Meanwhile, the large, private third-party firms’ portfolios have grown steadily. Dallas-based Riverstone Residential increased its number of units under management by 27 percent, jumping to the No. 2 spot this year from the No. 4 spot in ’07; Seattle-based Pinnacle increased its portfolio by 13 percent, moving to the No. 1 spot from No. 2; and buoyed by the addition of Dallas-based JPI’s portfolio, Greystar Real Estate Partners saw a 53 percent increase, pushing it from the No. 6 spot in ’07 to the No. 5 spot this year.

Christy Freeland, CEO of Riverstone Residential, says in these economic times, when every dollar matters, owners are more demanding and looking for the best operators out there. “The emphasis on performance is much higher,” she says. “If somebody is an average performer from a property management standpoint, they won’t make the cut.”

The fee sector also has been gaining business as more banks take over distressed properties. The banks need someone to competently run the apartment units until they get the assets off their books. Firms such as Riverstone and LEDIC are already managing units owned by banks and expect to take on additional units shortly.

“The lenders [want to see] a professional management company in place to prevent that marginal owner from operating the property to the detriment of the security holders,” says Stan Harrelson, CEO of Pinnacle. “Lenders have put us on notice to be ready.” Indeed, without heavy loads of debt from acquisition and development, managers may be in the best position to weather the downturn. “The real estate service sector is exceptionally poised for this period, assuming your own balance sheets are clear,” Harrelson adds.

Jeff Franzen

Executive Vice President
Jeff Franzen Executive Vice President

Lincoln Property Co. (No. 6) These days, survival is the name of the game, says multifamily owner and manager Lincoln Property Co. The Dallas-based firm managed 130,265 units in 2008, of which 82,886 were for third-party clients. Says the firm: “There is an uneasy search for a stable base of demand and pricing, both from a rent level and valuation standpoint. Compounding these difficulties are financing obstacles and distress within the ratings agencies.”

Still, while recognizing the challenging times brought on by the down economy, Lincoln Property closed on more than $500 million worth of deals last year. The firm sold many development sites prior to the downturn and thereby avoided a substantial development pipeline. The few developments that they started were in strong enough submarkets to perform reasonably well, despite the current economic climate. Paramount to the firm’s health are both its diversification into military housing and its strong fee management operation for many of the major institutional owners across the country.

In 2009, Lincoln says it’s putting more emphasis on increasing service levels at its multifamily fee management operations at both its conventional and military portfolios and believes today’s market environment presents the unique opportunity to hire the best in the industry. The firm has seen a substantial increase in its property and asset management businesses due to companies looking for a proven track record and a history of successful partnerships. Lincoln says endurance will remain the top priority for many companies in the industry.—Tanya Y. Coachman

J. Bradley Forrester

President and CEO
J. Bradley Forrester President and CEO

The Conam Group of Cos. (No. 22) Instead of entering new markets in 2008, ConAm opted to hunker down in its traditional West Coast strongholds—Las Vegas, Seattle, Fresno, Calif., Sacramento, Calif., San Diego, and Los Angeles.

Even with its safeguarding strategy, however, the San Diego-based firm pulled off more than $1 million in acquisitions last year, buying 573 units. The firm plans to start 320 units in 2009, up from the 221 units it started in the West last year, and renovate 1,000 units this year.

Going forward, ConAm hopes to expand its property management market share; implement online leasing and lead tracking capabilities; and continue to improve on resident satisfaction.—Tanya Y. Coachman

Kellie Falk-Tillett 

Missy McLamb Kellie Falk-Tillett Principal

Drucker & Falk (No. 42) Drucker & Falk’s most notable accomplishments in 2008 included opening a regional office in Charlotte, N.C.; implementing affordable housing software; and venturing into mixed-use management. The Newport News, Va.-based firm, which managed 28,216 units in the Northeast and South last year, entered several new markets in ’08, including Knoxville, Tenn.; Myrtle Beach, S.C.; and Blacksburg, Va.; it exited Asheville, N.C.

This year, the firm projects to renovate 1,000 units; last year, it renovated 3,000 units in the South. In addition, the firm plans to open a Richmond, Va., office; increase commercial management in all regional markets; and implement an online rent payment mechanism.—Tanya Y. Coachman