As the multifamily market expands, many developers, owners, and managers are expanding right along with it, by finding strength in numbers. Case in point: the July announcement that Dallas-based Trammell Crow Residential (TCR) had merged with Carlsbad, Calif.–based GLJ Partners.
That certainly hasn’t been the only union this year. Though it wasn’t a merger, El Paso, Texas–based Hunt Cos., a top 10 builder with a heavy focus in military housing, agreed in March to invest at the entity level in a new venture with Carlsbad-based Urban West. And in January, Scottsdale, Ariz.–based MC Cos. and Phoenix-based Clark-Wayland merged to create a joint venture called MC Clark-Wayland to focus on development and construction of new multifamily projects in Phoenix and Tucson, Ariz. The combined company has about 175 full-time employees and two projects under construction in Tucson.
Management companies have been active as well. Take Portland, Ore.–based Guardian Real Estate Services and Everett, Wash.–based Legacy Management Group, which announced a merger agreement that authorizes Guardian to operate all of Legacy’s multifamily properties in Washington, Oregon, Texas, Arizona, Utah, and Alaska.
Though a primary driver of these new unions is geographic fit, other factors, such as corporate compatibility, can also play a huge role.
Manifest Destiny
Questions arose about TCR when Dallas-based Mill Creek Residential spun out from the firm in 2010. “After the spin-off of Mill Creek, we were rebuilding the company,” says TCR CEO Ken Valach. “We got through it much quicker than we thought.”
In May, the once-prolific builder told Multifamily Executive that it had 2,000 units in its pipeline. With last month’s announcement that TCR had merged with GLJ, that number is likely to grow.
By merging with GLJ—which is headed by TCR alum Garth Erdossy; Luke Daniels, formerly of Dallas-based CLB Partners; and Tony Ditteaux, previously with Irvine, Calif.–based seniors developer FountainGlen Properties—TCR can push growth on the West Coast. In all, 20 employees will come to TCR in the merger and focus on leading TCR’s expansion in the West.
Valach can now enter that market without having to start from scratch. “They have a team. They have development guys looking at sites, sites under contract, and a proven construction organization,” he says. “It would have taken me two or three years to build up to what they have today.”
Similarly, the Legacy merger grows Guardian’s portfolio by 150 properties for a total of more than 18,000 multifamily units.
“This lands us in the state of Washington and the Seattle market with both feet,” says Tom Brenneke, president of Guardian. “It’s a significant presence for our company. I’m as big in Washington now as I am in Oregon. It’s five years of growth consolidated into one fell swoop.”
Financial Firepower
For Urban West founder Ed Easley, Hunt’s investment allows him to focus on development and acquisition deals in Arizona, California, and Washington. For Hunt (which deferred to Easley any inquiries about the partnership), the venture offers the chance to capture market-rate opportunities in the Western United States.
“Ed brings [Hunt] an opportunity to continue diversification out of military housing and into multifamily from a development perspective,” says Randal Howard, a partner at Chicago-based Moran & Co., which sourced about 20 potential sponsor equity partners for the new venture. “For Hunt, it’s another growth vehicle for a large and dynamic company.”
For Urban West, there are advantages beyond even the financial backing. “[Hunt] provides business services to investment platforms,” Easley says. “We’ll be able to benefit from that—financial accounting, taxes, and human resources. We can leverage those things. Having a capable financial partner like Hunt is something that’s required to be successful.”
Like many others, Easley saw the opportunity to get his acquisitions and development engine revved up again. “A lot of people form these alliances to position themselves [to] capture the opportunities that are out there,” he says.
Gary E. Mozer, principal and managing director at Los Angeles–based George Smith Partners, thinks this kind of deal is actually the wave of the future. “We’re seeing more strategic partnerships with capital partners,” he says.
Complements
TCR’s Valach hadn’t even considered a merger as a way to gain a foothold into Southern California, but after talking to Erdossy, he saw an opportunity.
“I’ve known Garth Erdossy for 15 or 16 years,” Valach says. “Just by chance, we happened to talk and he wanted a bigger platform to work off of. He has a seasoned team there, and that made all the sense in the world. Harlan [Harlan Crow, CEO of Crow Holdings] knows Garth. We spent a lot of time talking philosophy and we figured it would be a good fit for all of us.”
There were other drivers, as well. “They have a couple of pursuits,” Valach says. “They have really attractive sites that we’re going to work with them on.”
TCR owns 16,000 apartment units nationwide with an additional 2,000 new units planned for construction this year. GLJ currently has three projects and almost 1,000 units under construction in Southern California, including a $120 million mixed-use project in Marina del Rey. The two companies will develop their legacy business as planned, though Valach may get GLJ to develop a site he has in Southern California in addition to working with his new partners on a couple of their sites.
Guardian’s Brenneke also had familiarity with some of the leaders at Legacy before the absorption of that platform.
“It’s a bit of a marriage,” Brenneke says. “All of those key employees and that key relationship within that portfolio will have to be managed and massaged and maintained. It’s a whole lot easier doing it with key people [in place] than starting off brand new.”
Still, this trend toward togetherness is a cautious enterprise. Many unions were torn apart during the last downturn, and those lessons could prevent a rash of mergers this time around. “A lot of guys are going on their own because they had problems with these marriages in the last cycle,” Mozer says.
