June 4th was a busy day for Rick Graf, CEO of Dallas-based apartment manager Pinnacle, as he dealt with the fallout of two of his biggest rivals joining forces.
“Many our clients are shared clients with Greystar and Riverstone,” he said Wednesday afternoon. “My phone is blowing up, as you can imagine, with people in the industry wondering what’s the deal.”
Graf’s clients aren’t alone in wondering about the marriage of Charleston, S.C.-based Greystar and Dallas-based Riverstone Residential. Many competitors, clients, and employees have wondered just exactly what the news means to them. While the nearly 400,000-unit Greystar-Riverstone colossus could, on the surface, create problems for both national and regional property managers, those competitors publicly say the merger will create opportunity.
“We at Laramar [Chicago-based Laramar Group] always sold David against Goliath,” says Dave Woodward, now president of Denver-based manager CompassRock Real Estate. “My gut reaction is this helps [do that].”
Steve Heimler—who sold his company, Woodland Hills, Calif.-based Stratus Real Estate to Riverstone back in 2007—thinks the deal allows smaller operators to test their local acumen against a national one-size-fits-all approach.
“The big seem to get bigger but this might open the playing field for more regional and mid-sized shops to express their local knowledge in a business that is, ultimately, best understood by the local operator that knows which street is the right side of the tracks,” says Heimler, now the president of Cirrus Asset Management.
As the fourth-ranked national manager on the last NMHC 50 Managers list, Graf has a different position. He’s actually scaled Pinnacle’s national platform down from 185,219 units in 2010 (when it was the largest national manager) to 132,450 units at the end of 2013.
“We have a different approach,” Graf says. “We have an approach of strategically shrinking the size of our platform the last three or four years to enable us to focus on our clients and their goals and objectives.”
Graf thinks that strategy perfectly positions him to take on Greystar. Specifically, he thinks he can make a case that a smaller operator can be more responsive to customer needs.
“I think there will be some fallout and it could be beneficial to our company and others who don’t think bigger is better,” he says. “I don’t always think bigger is better.”
Approaching the 400,000-Unit Threshold
Back in the late 90’s, after a period of IPOs and mergers and acquisitions, a number of companies, including AIMCO, built massive portfolios, but none of them approached 400,000 units, according to the National Multifamily Housing Council.
Ultimately, owners pared down these large, unruly portfolios. Many wonder if Greystar will face similar challenges with more than 390,000 units and 10,000 employees.
“You have 10,000 employees,” Graf says. “That’s a huge number of properties, employees, and relationships. I’m sure the Riverstone guys would say that one of their challenges in acquiring companies was creating culture and creating systems.”
Integrating Riverstone’s 176,319 units (as of Dec. 31, 2013) with Greystar’s 214,696 units will be a challenge. Graf says that corporate culture, as well as systems such as those for technology or accounting, can be the toughest parts to manage during a transition. Heimler, echoes those thoughts, saying the Greystar team “will have a significant integration task ahead.”
In the end, there are more questions than answers about the newly announced marriage. “Will it change the landscape?” Graf asks “Obviously. But, what will it mean? How will it shake out? Time will tell.”
The answer will depend of whether you're a competitor, an owner of a property management company (who may be thinking of selling and wondering what Riverstone’s valuation was in the sale), or an employee of one of the two firms.
How do you think this giant sale will affect you? Why don't you take a second to sound off and leave a comment below?